Week Ending August 2

Oil Sinks Below $75 as Demand Concerns in US, China Offset Middle East Escalation

Oil prices had a volatile week, with September '24 WTI extending last week's losses to finish $3.64 lower at $73.52/Bbl. Demand concerns in China and the US overshadowed heightened geopolitical risks in the Middle East.

Prices found support on Wednesday after Iran ordered retaliation against Israel for conducting airstrikes in Iran and Lebanon, killing a Hamas leader. The conflict has escalated since last weekend following a Hezbollah attack on Israel, potentially jeopardizing the ongoing cease-fire talks.

Furthermore, futures also found support from increased expectations that US monetary policy easing will boost consumption, with Fed Chair Powell hinting that an interest rate cut could come as soon as September.

However, falling manufacturing activity in both China and the US weighed on prices, adding to concerns about demand growth after last month's data showed Chinese imports and refinery activity shrinking. US manufacturing activity shrank in July by the most in eight months, according to the Institute for Supply Management's manufacturing PMI. Additionally, prices lost further ground following Friday’s weak US payroll data.

Meanwhile, an OPEC+ meeting on Thursday left the group's production policy unchanged and is still on track to bring back production in 4Q 2024. AEGIS is neutral on balance 2024, expecting further out tenors to rise toward prompt prices. If price weakness continues due to ongoing demand concerns, the cartel reiterated it might delay or cancel the gradual withdrawal of voluntary cuts planned from October onwards to support prices and avoid an oversupply.

Natural Gas Prices Continue to Slide, Falling Below $2/MMBtu

The September Henry Hub contract fell another 8c this week, extending two-week losses to 19c and settling at $1.97/MMBtu. The rest of the curve also fell, with Winter ‘24/’25 down 10c to $3.05/MMBtu and Summer ’25 down 6c to $3.04/MMBtu. This week’s price action marks the third consecutive lower weekly settlement, with seven of the last eight weeks finishing lower.

This price weakness has come amid weather that is still slightly more bullish than average. July was the seventh hottest of the last 18 years, higher than the ten-year average but not as strong as June, which was the hottest of the same period. The next two weeks are currently forecast to be close to the ten-year average, which may not be enough to support gas burns and prices.

This week, it was reported that ExxonMobil’s Golden Pass LNG export plant will experience delays due to its contractor's bankruptcy. The expected start date has been pushed back by six months to the end of 2025. This move was largely expected given the construction-related issues, and the market reaction to the news appears limited. This delay reduces the expected call on supply in the second half of 2025, but given the startup of other LNG projects, the back half of 2025 still appears to be skewed bullish.

AEGIS remains bearish on the Winter ‘'24/’25 strip and the first half of 2025 before taking a more bullish outlook. Collars are recommended for winter months, given elevated levels of call skew, which can benefit producers by allowing for a higher hedge floor. Swaps may be more preferable in the summer months.