Week Ending November 1

OPEC+ Delays Production Unwind Again as Oil Market Weighs Impact of Trump’s Policies

Oil futures posted a modest weekly gain as the markets try to figure out how the president-elect will handle the Middle East conflict and Iranian oil exports. December '24 WTI closed $0.89, or 1.4%, higher at $70.38/Bbl this week. Prices fell on Friday after Chinese stimulus measures underwhelmed market participants.

China approved a $1.4 trillion aid plan for local governments, including a $840 billion debt ceiling increase and $550 billion special bonds over five years. Despite new measures for bank recapitalization and fiscal policy, traders were disappointed. Oil prices slipped on fears that China's economic slowdown could keep a tight lid on oil demand growth.

Oil futures, however, finished modestly higher for the week, with support tied in part to expectations that the Trump administration may enforce stricter measures on Iran. AEGIS notes that the existing sanctions-evading dark fleet network could make enforcing sanctions on Iranian oil exports challenging. However, the Trump administration’s preferred tool, a “tariff,” could possibly be used to leverage current buyers of Iranian crude.

Although reduced U.S. energy regulations could support oil prices by lowering production costs, producers remain cautious of oversupply risks and are likely to maintain capital discipline. However, any swift expansion in domestic drilling, relaxation of Russian export restrictions, or imposition of heavy tariffs on imports could offset these gains, as a trade war might dampen economic activity and reduce oil demand, depending on policy implementation.

Additionally, OPEC+ has delayed the unwind of its 2.2 MMBbl/d voluntary production cut for a second time despite its forecast of nearly 2 MMBbl/d demand growth in 2025. This cautious approach reflects weak demand, particularly from China, and rising non-OPEC supply, which keeps downward pressure on prices. Typically, OPEC+’s output cuts act as a price floor, but with up to 6 MMBbl/d in spare capacity, the group can act as a cap for prices as well, likely to adopt a month-to-month strategy that could test group cohesion over time.

AEGIS maintains a neutral outlook for 2025 based on projected oversupply and weak demand growth. Potential Middle East disruptions are not included in this base case. We expect prices to realize close to the front-month levels and recommend swaps for 2025 to ensure maximum protection.

Natural Gas Prices Remain Mostly Unchanged in Muted Week

The December Henry Hub contract finished the week up 1c at $2.69/MMBtu. Price action in the forward strips was also muted, with little week-over-week change. The current weather outlook implies that the injection season may still have some time left, and this week’s US presidential election may lead to a more favorable permitting environment for future LNG projects.

Typically, the beginning of November marks the end of the natural gas storage injection season, as temperatures begin to fall and demand for space heating rises. However, injections are expected to continue for the next two weeks due to unseasonably warm weather. This week, the EIA reported a 69-Bcf injection into storage, bringing total inventories to 3,932 Bcf. This is 215 Bcf above the five-year average and higher than the five-year maximum for this period. With weather remaining bearish in the two-week forecast window, inventories will likely continue to rise to 4 Tcf or higher into the start of winter. Assuming 10-year average weather for this upcoming winter, this may end the withdrawal season at around 2 Tcf, a level above the five-year maximum.

While this week’s presidential election may not have many sizeable near-term impacts on gas pricing, it could lead to a more favorable environment for LNG projects. While the Biden administration's pause on LNG permitting this year likely would not impact any facilities currently under construction, it is unlikely that similar policies would be enacted under the Trump administration. More favorable government policies for energy infrastructure should support or at least will not hinder the LNG buildout over the next several years.

AEGIS holds a neutral outlook on prices through the end of Summer ’25 at which point we believe the market should be more supported by increasing LNG export demand. Swaps may be a more preferable hedging instrument for the summer months while costless collars may be preferred in the winter due to call skew allowing for a higher hedge floor.