Weekly Oil & Gas Market Commentary

Ralph Lowe Energy Institute – Neeley School of Business

Texas Christian University?

Weekly Oil & Gas Commentary

December 6, 2024

?

Oil – Fundamental Analysis

Crude prices broke out of a consolidation pattern this week but unexpectedly to the downside, despite OPEC+ delaying any output increase until at least April of next year. WTI had been bouncing between $67.70 and $70.50 as traders took positions based upon the Middle East conflict, Russia/Ukraine, demand concerns and, while they awaited the cartel’s decision on an output increase that had been delayed at least twice before. In the end, the specter of lower future consumption weighed on the market. Additionally, while a large draw in crude inventory was bullish for prices, the gains in refined products proved bearish. WTI saw a weekly Hi/Lo range of $70.50/Bbl. (Wednesday)/$67.00 (Friday). Brent North Sea crude echoed the pricing pattern with a Hi/Lo of $74.25/$70.85. Both grades settled lower week-on-week. The WTI/Brent spread has widened to -$4.10/Bbl.

?Not only did they delay an increase in exports, the OPEC+ group is spreading-out the future lifting of curtailment volumes across an 18-month period, further lessening the market impact. With additional OPEC+ barrels not hitting the global market any sooner than 2Q25, Morgan Stanley has lowered their surplus projections for next year from +1.3 million Bbld. to +800k Bbld. but a surplus remains, nonetheless. The World Bank has projected the overhang to be closer to +1.2 million bpd and cites the increased activity in global offshore E&P as part of their analysis. China still remains a key factor in oil market price movements as demand there remains a concern. October consumption was -5.4 year-on-year while year-to-date usage has been -4.0%. Reuters is forecasting that China’s oil demand will peak next year citing increased EV and Hybrid vehicle sales there along with economic weakness.

?Argentina’s Vaca Muerta shale play produced 400l bpd in 3Q4, a new record. Forecasts call for as much as 1.0 million bpd by 2030. Meanwhile, Libya, Africa’s largest holder of oil reserves, hit a decade-high 1.4 million bpd in oil & condensate production this week. Conflicts between its West and East governing jurisdictions had halted production until a settlement was reached in September. Both Eni and BP are actively drilling there, now. Libya is not subject to OPEC’s production caps.

?The Energy Information Administration’s Weekly Petroleum Status Report indicated that commercial crude oil inventories for last week decreased by -5.1 million Bbl. to a total of 423 Bbl. million, falling to

?-5% below the 5-year average. The API had forecasted a change of -1.23 million Bbl. while market analysts called for a decline of -1.2 million Bbl. US refinery utilization was 93.3% vs 90.5 the prior week, which represents a +615k bpd. rise in inputs to 16.9 million bpd. Total motor gasoline increased +2.4 million Bbl. to 215 million Bbl., and -4% below the 5-year average. Gasoline demand increased +232k bpd to 8.7 million bpd. vs. 8.5 the week prior and 8.5 a year ago. Distillates increased by +2.4 million Bbl. to 118 million Bbl., moving up to -5% below the 5-year average. East Coast heating oil stocks were -5k Bbl. lower to 0.697 million Bbl. Inventory at the key Cushing, OK hub changed +5k Bbl. to 24.2 million Bbl. or 33% of capacity. The SPR gained +1.4 million Bbl. to 392 million Bbl. Imports of crude oil were +1.2 million Bbld. to 7.3 million Bbld. vs. 6.5 the prior week while exports were 4.2 million bpd. vs. 4.7 the prior week.? Exports of petroleum products were 7.5 million bpd. last week vs. 6.7 the prior week. Total US oil production rose +20k bpd to 13.513 million Bbld. vs. 13.1 last year at this time. ?(It should be noted that this is the first time the EIA has used a more granular supply number.) The US rig count rose by -7 last week to 589 vs. 616 a year-ago.

?AAA’s US average retail gasoline prices at the pump were most recently reported at $3.025/gal., -$0.037/gal. from last week, -$0.081/gal. from last month and -$0.19/gal. lower than a year ago.?

The November Labor Department jobs report indicated a gain of +227k in line with expectations and representing solid growth. The unemployment rate did tick-up to 4.2% from 4.1%, however. October employment figures were adjusted upwards to +36k from the initial +12k. (The lower numbers were attributed to weather events and strikes.)? Additionally, average hourly wages increased +4% over the prior year vs. an expectation of +3.9%. However, the ISM’s services index fell -3.9% to 52.1, weaker than expected. And ADP’s private sector employment change was +146k, lower than a forecasted +150k. The latter reports weighed on oil prices. Claims for unemployment compensation last week rose +9k to 224k vs. an expected 215k. The US trade deficit fell by -1.6% last month over September. However, year-to-date, the deficit is +12.3% higher than the same period in 2023. The Dow is down on the week while the S&P and NASDAQ are both trading higher. The USD is also up, which is bearish for oil prices.

?Oil – Technical Analysis

?January NYMEX WTI Futures prices are trading below the 8-, 13-, and 21-day Moving Averages on Friday’s fall. Volume, shown in the second box, is about average at 235k. The Relative Strength Indicator (RSI), a momentum indicator shown in the 3rd box, is “neutral” at the “43” mark. “30” or below is considered very oversold while “70” or above is considered very overbought. Resistance is now pegged at $68.50 (8-day MA) with near-term Support at $67.00.

?Looking Ahead

As we have seen for several months now, projections for declining demand have over-ridden most other factors over the longer term. And the near-term prospects don’t favor an increase. OPEC+ pushing back the lifting of output quotas has only served to keep prices from cratering further. That being said, events in the Middle East and the Russia/Ukraine war could spark supply concerns in an instant. From a US domestic heating oil demand perspective, the 8–14-day forecast looks mostly bearish.

?Natural Gas – Fundamental Analysis

Natural gas prices have been dictated by trader weather perceptions on any given day. And, this week, the 8–14-day forecast led to lower prices. Granted, there has been cold and snow in major US cities in the Midwest and East coast, but the market is trading next month. A lower-than-forecasted storage withdrawal only added a bearish outlook. The week’s High was $3.28/MMBtu on Monday while the Low was Wednesday’s $2.97. European gas prices were lower this week as Russia changed the payment methods for exports to allow 3rd-party banks to facilitate the transactions thus, potentially thwarting US sanctions. EU storage levels have been drawn on considerably and now stand at 84% full. European natural gas prices were most recently at $13.60/MMBtu equivalent. Supply last week was +0.2 Bcfd to 109.7 Bcfd vs. 109.5 the prior week. Demand was 135.9 Bcfd, up from 117.4 the week prior with the biggest increase in Residential usage. Exports to Mexico were 5.9 Bcfd vs. 5.8 the prior week. LNG exports were 14.5 Bcfd. vs. 14.0 the prior week. The latest European natural gas prices were quoted at ≈$11.70/MMBtu. The EIA’s Weekly Natural Gas Storage Report indicated a withdrawal of -30 Bcf vs. a forecast of -48 Bcf and vs. the 5-year average of -47 Bcf. ??Total gas in storage is now 3.937 Tcf, rising to +4.9% above last year and rising to 7.8% over the 5-year average.

?Natural Gas – Technical Analysis

?December 2024 NYMEX Henry Hub Natural Gas futures are around the 13- and 21-day Moving Averages and below the 8-day MA. ?Volume is about average at 135k. The RSI is “neutral” at “52”. Support is pegged at $3.00 with Resistance at $3.10.

?Looking Ahead

TotalEnergies, Japan’s Mitsui and the government of Mozambique are finalizing plans to restart the construction of the country’s $20 billion LNG project and are working towards an FID. Meanwhile, Petrobras and its partner, Ecopetrol, have announced the largest gas discovery in the history of Columbia. The drilling of the Sirius-2 well in the Gujaira Basin proved reserves of more than 6 Tcf. The 14.5 Bcfd of LNG last week is the highest in several months. As with heating oil, natural gas demand in the 8-14-day forecast looks bleak.

?

Tom

?

Tom Seng, Ed.D.

Assistant Professor of Professional Practice in Energy

Ralph Lowe Energy Institute

Neeley School of Business

Texas Christian University

TCU Box 298530

RJH-105C

Fort Worth, TX 76129

[email protected]

817-257-1022