Last month, a survey by law firm Haynes Boone LLC revealed that banks are gearing up for oil prices to fall below $60 a barrel by the middle of President-elect Donald Trump’s new term. The survey of 26 bankers showed that they expect WTI prices to drop to $58.62 a barrel by 2027, nearly $20 lower than the intraday price of $76.22 at 12.00 pm ET on Wednesday.
Trump says he’ll push shale producers to ramp up output, even if it means operators “drill themselves out of business.” However, commodity analysts at Standard Chartered have predicted that the dramatic slowdown in U.S. oil production growth that we witnessed in 2024 will continue over the next two years.
According to the experts, last year witnessed a sharp slowdown in non-OPEC+ supply growth from 2.46 mb/d in 2023 to 0.79 mb/d in 2024, primarily caused by a reduction in U.S. total liquids growth from 1.605 mb/d in 2023 to 734 kb/d in 2024. StanChart expects this trend to continue, with U.S. liquids growth expected to clock in at just 367 kb/d in 2025 before slowing down further to 151 kb/d in 2026.
Stanchart says the U.S. slowdown and a long tail of declines will keep non-OPEC supply growth well below 1 mb/d over the next couple of years despite some areas of solid growth in Brazil, Canada and Guyana. In other words, there’s no inevitable supply glut coming as many traders feared in 2024.
Meanwhile, StanChart has reported that the oil market sentiment appears to have improved significantly over the past month, particularly among hedge funds. StanChart’s proprietary crude oil money-manager positioning index has risen for three successive weeks; in the latest data it rose 15.0 w/w to a 24-week high of -2.1. StanChart’s positioning index for the ICE Brent contract is now positive after climbing 17.8 w/w to a 30-week high of +6.0. The improvement in sentiment has accompanied a gradual trend in higher oil prices.
According to StanChart, front-month Brent has managed a run of nine consecutive intraday highs, noting that the longest such run since the start of the contract was 12 achieved in 1988.
After weakening in Q3 2024, global oil demand appears to have strengthened in the fourth quarter. StanChart has calculated that global demand averaged 103.291 mb/d in October, a y/y increase of 1.366 mb/d accelerating from September’s tepid 366 kb/d growth. Growth was boosted by strong U.S. demand, which increased 379 kb/d y/y to 21.01 mb/d. This marks the strongest U.S. demand since August 2019 and the third-highest monthly average on record.
Bullish Gas Markets
Natural gas markets have been even more bullish over the past couple of months. U.S. natural gas futures rose more than 4% to $3.6/MMBtu on Wednesday, driven by strong global demand and disruptions in supply. U.S. utilities have been withdrawing natural gas from storage at a faster-than-expected pace, with colder-than-normal weather expected to persist through January. U.S. utilities withdrew 40 billion cubic feet of natural gas in the week ending January 3rd, lowering total stockpiles to 3,373 bcf. This marked the eighth consecutive draw in inventories, aligning with the typical start to the withdrawal season.
Similarly, Europe’s vast natural gas inventories are currently depleting at the fastest clip since 2018 as cold weather ramps up heating needs. According to Gas Infrastructure Europe data, storage is just over 70% full compared with about 86% a year ago. Gas inventories currently are 25% below last year’s peak, marking the biggest drop in seven years.
“The lower that end-March storage levels are, the harder it will be for the region to refill ahead of the next winter,” Samantha Dart, Goldman Sachs Group Inc.’s head of natural gas research, said in a note. “Specifically, under the colder-than-average scenario that is currently forecast,” she added.
However, Europe’s gas prices have been easing as no immediate supply shortages are expected despite rising demand. European natural gas futures dipped to €46.10 per megawatt-hour on Wednesday, pulling back from above €50. Europe’s reliance on global liquefied natural gas (LNG) to replace Russian pipeline flows have heightened the region’s exposure to price swings, with unplanned outages including Norway’s Hammerfest LNG plant closure adding to market volatility.
By Alex Kimani for Oilprice.com