There were few surprises in the IEA monthly report and the Paris-based agency is still plotting a global scenario of decreasing need for oil. For 2024, it trimmed the demand forecast growth by 80,000 to 840kbpd. This remains the most negative of outlook and although OPEC reduced its own forecast, it was not at the same pace to that of the IEA. In fact, OPEC and the EIA reduced by 20kbpd and 10kbpd respectively to 103.83mbpd and 103.03mbpd in something of alignment while the IEA is still running as a more bearish outlier. However, and contrary to its other future spotting competitors, the IEA increased its 2025 growth forecast by 20kbpd against OPEC's -27kbpd and EIA -3kbpd. Small beer indeed, and one made all the more insignificant as it expects a surplus of 950kbpd next year due to increased production from the Americas with the possibility of it increasing to 1.4mbpd if OPEC does bring back shuttered oil. 

Needless to say, the combined influence by the forecasting reports of the three is negligible and oil prices have more pressing matters to dwell on. Despite a macro suite dominated at present by interest rates, oil instead concentrates on more micro matters. The EU's ramping up of sanctions on Russia is still causing bullish reverberations and as the US is making noises in which it might join in, the idea of less Russian oil on the water will remain fresh. With sanctions to the fore once again, the oil fraternity is starting to convince itself that the US under a Donald Trump presidency will immediately go after Iran. It does beg whether the reason Iran yesterday agreed to allow the International Atomic Energy Agency (IAEA) inspectors into its Fordow Fuel Enrichment Plant is an appeasement move to head off any perceived antipathy from the next US administration, but with the IAEA reporting increased enrichment in Iran, Mr Trump will unlikely be abashed in attitude. This is highlighted by a piece in the Wall Street Journal this morning that the incoming administration is weighing options for stopping Iran from being able to build nuclear weapons, including the possibility of preventive airstrikes.

The releases from China's Central Economic Work Conference lacks detailed stimulus policy but given the current mood in the oil market to be prudent into the year end, none feel inclined to rubbish it yet and make it a point of sentiment reversal. With Israel prowling the skies of its neighbours and an explosive situation in Syria, oil protagonists remain hedged in position and emotion to upward moves.

Concern on whether gas prices will weather the winter

Sitting in the background and adding to the recent bounce in oil prices are the factors that keep Gas prices, in all its forms, climbing. M1 Henry Hub Natural Gas Futures hit a 3-month low in August this year of $1.856 and has since rallied to be now trading at or around $3.400 MMBtu. January 2025 Dutch TTF futures has also been rallying over similar period from Eur34.400 to Eur44.400 Mw/h. LNG Japan/Korea Marker PLATTS Future (JKM) has increased from $12.00 to $15.00 MMBtu.

In a market that has been increasingly used to a lack of weather seasonality, the recent cold snap in Europe and parts of the United States have served as a reminder that being comfortable with global gas supplies may not be the best attitude. Europe’s weather is adhering to forecasts made in October by scientists at the World Meteorological Organisation who predicted colder temperatures across western Europe between the period of October to February. Referencing the weather phenomenon La Nina as a likely disrupter of weather patterns, they expect a 60% chance of it influencing a colder outlook. La Nina is the opposite of El Nino in which Pacific Ocean temperatures are colder than average and impact global weather patterns.

Of late, gas prices in Europe have taken up a something of holding pattern. This is despite disruptions in Norway’s Asgard field and continued anxiety on Russian deliveries through Ukraine. In the US, cold weather arriving in late November and this month is causing the EIA to be somewhat circumspect in their forecast for gas prices. Although inventory, in the agency’s opinion, will remain above the five-year mean, it expects a substantial draw of 590 billion cubic feet (Bcf) in December which equates to a reduction of 34% over and above the five-year average. However, this assumes a benign winter and that gas production at Permian and Eagle Ford will continue to increase. Indeed, in its Short-Term Energy Outlook (STEO), there is an expectation that the spot Henry Hub price will not deviate much from $3.00 MMbtu for the rest of the winter.

Such equilibrium either side of the Atlantic will not take much to upset. Europe’s dependency on gas is well recorded, with many countries hitting panic buttons at the first sign of tightening supply. Take for example the mini farrago played out in early November when the Austrian energy company, OMV, won a court case against Gazprom over contractual payments and with the company seeking recompense by withholding payments. The market expected a switch off from Gazprom and the 38 million cubic metres of Russian gas per day that flows via Ukraine, prices obliged by rallying hard. This is a paltry amount when compared with the total 155 billion cubic metres that were delivered in 2021. However, such is the twitch in Europe over energy security, that small amounts receive reaction.

Enter the defining link. The shortfall of gas supplies in Europe has been made up by LNG imports. In 2023, and according to various sources, the total inward flow was over 130 billion cubic metres. The biggest supplier of the liquefied fuel was the United States supplying around 50% of that number. According to the EIA, total US marketed natural gas production was 113.1 billion cubic feet per day in 2023 with pretty much the same 113.0 billion cubic feet expected for 2024 with up to 15% being converted to LNG for export. Vulnerability in supply of gas for Europe has been switched from Russia to the US. Therefore, disruptive weather scenarios caused by the likes of La Nina might just see raised demand both sides of the pond.

As unlikely as it seems, if freezing weather grips pipelines in the US the effect will be far flung. It is also not a far-flung notion without history. Winter Storm Uri in February 2021 froze natural gas assets in Texas of all places and its effect on domestic power was vast. With the US gas elevated to the world stage such an event in modern times will cause serious gas concern. With Europe elevating sanctions on Russia in a bid to quell the lucrative dark fleet income stream, one wonders if gas revenge will be deployed by a peeved Vladimir Putin. If a benign winter does play out in the United States as the EIA expects, then gas anxiety will be burst very quickly, but here is a market with a fortune completely tied to seasonality, rather than interest rates or how much money is being made on Nvidia.

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