Week Ending November 22

Oil Prices Recover From Last Week’s Losses, Driven by Geopolitical Risks

WTI prices finished the week higher by more than $4 to $71.21/Bbl, with prices being pushed higher by an increase in geopolitical risk premium from Russia and Iran. This has come despite continued strength in the US dollar, which pressured prices lower last week.

Risk premium from the Ukraine-Russia conflict increased this week with the US authorizing Ukraine to use long range missiles provided by western governments against targets inside of Russia. This escalation prompted Russia to use a new missile system in a strike on Ukraine, and to lower the threshold for a nuclear response. While there is no direct impact on any crude flows, the market did interpret the increasing tensions as a bullish factor for oil prices.

Meanwhile, Iran announced its intent to expand its nuclear-fuel capacity after it was censured by the United Nations atomic watchdog. This move by Iran comes only a few days after saying it is ready to resolve the standoff over its nuclear program by agreeing to stop enriching uranium to levels close to what is needed to produce a weapon. Any further tensions with Iran could lead to additional sanctions, which currently result in almost all Iranian crude being shipped to China at a discount to global prices.

The bullishness in oil prices this week has come despite a further strengthening of the US dollar. The US dollar index has now risen above 107.5, to a new multi-year high. The index is up nearly 7% since the start of October, and 4% since the US presidential election. A stronger dollar will usually equate to weaker commodity prices.

We continue to hold a neutral view on crude prices in 2025, with OPEC+ likely deciding the course of prices through their plan to bring supply back. Any price weakness may be met with a continued delay to OPEC’s plan, while a stronger price environment may allow the group to bring production back to the market.

Gas Rallies on Weather

Strong moves in the natural gas curve as weather models show anomalous cooler temperatures entering the eastern United States around the end of the month.

The December contract rallied every day this week as weather forecasts continued to validate and increase the shift to colder outcomes. December finished Friday at $3.13/MMBtu, up from $2.82 last week. Price strength wasn’t isolated to the front of the curve, as the Cal 2025 swap finished the week at $3.26/MMBtu, up from $3.10 last Friday.

The velocity at which gas prices moved this week wasn’t just about the cooler weather forecasts. In the backdrop of a well-supplied and bearish trending market, gas traders as a whole were heavily short of the commodity. Couple this fact with a bullish catalyst like the weather shift, and you can spur a flurry of short-covering that can exacerbate a rally. The shift in higher demand probably removed just under 100 Bcf from storage that otherwise would have been there to serve the market.

Looking ahead to 2025, we maintain a bearish outlook for the first half (1H) of the year but are optimistic about the second half (2H). As of Friday, 1H 2025 natural gas was trading at $3.04 per MMBtu, while 2H was priced at $3.48 per MMBtu. If our projection of a 2 Tcf winter exit rate proves accurate, we anticipate 1H 2025 pricing will average below $3.04. This is supported by expectations of elevated storage levels, which could weigh on prices early in the year. Conversely, a strong case exists for 2H 2025 prices settling above $3.48. As LNG demand grows, producers will likely have to try and work to maintain supply levels high enough to meet this increased demand, providing upward pressure on prices in the latter half of the year.