As we wrap up 2024, most of the energy industry is already looking forward to 2025, with the prevailing question of what will happen to oil and gas prices.
The answer is, of course, “it depends,” as there are many wildcards in both sectors. Nevertheless, there are some prevailing trends that can give us some insight into where prices are going.
Winter will set the tone for natural gas prices, but other factors will be at play.
Natural gas supplies remain ample coming into 2025. Although electricity demand was up during the summer, it still fell short of pulling hefty natural gas supplies down. Meanwhile, the hurricane season during the fourth quarter damaged demand more than it did natural gas supplies, especially in the case of Hurricane Milton.
Simply put, storage will need to contract substantially as we enter 2025 to give a significant lift to prices. Waha basis prices in Texas have weighed down prices; however, I do see that improving with added pipeline takeaway, such as through the Matterhorn Express Pipeline and increased flows into Mexico.
LNG takeaway will be the longer-term bullish driver, but it will do little to 2025 prices if we see a mild weather pattern. Currently, there looks to be between 1 Bcf/d and 2 Bcf/d of production shut-in in northern Appalachia due to low prices. This will be a burden on supply once it’s released, unless, of course, cold weather in the area can take away supplies. The Mountain Valley Pipeline will help, but not at the level that’s needed with additional production.
Nevertheless, as of this writing, I believe front-month natural gas prices of $2.30/MMBtu are too cheap and that higher prices are to come. Prices setting just north of $3/MMBtu in first-quarter 2025 and $2.90/MMBtu in the second quarter are fairly priced, but a colder-than-normal start to winter in late November of this year could easily propel prices north of $3.50/MMBtu. Then, possibly the $4.00/MMBtu-$4.40/MMBtu area will be a stopping point—unless, of course, we see geopolitical escalations in Russia or extended cold weather.
The last half of 2025 is currently priced at $3.30/MMBtu, but any significant weather demand could easily propel prices to the $4.00/MMBtu or $4.50/MMBtu area. That said, these price forecasts depend on the U.S. economy remaining in a soft-landing mode, as industrial demand will be a key factor in prices rising. LNG will be helpful but could underperform if Russia continues good flows of natural gas exports into Europe.
Longer-term technical bar charts show a slightly upward momentum, with $3.703/MMBtu being a heavy resistance area. A technical move above that area could target the $4.394/MMBtu -$4.40/MMBtu area.
Geopolitical tension will be key for crude
In the final stretch of 2024, crude oil prices have been in a battle between slacking demand from China applying downward pressure and geopolitical tension (in the Middle East and between Ukraine and Russia) applying upward pressure.
Many analysts, including myself, believe that at the current economic pace of China, crude will very likely be in an “oversupply situation” if we see OPEC increase production into 2025. However, if Saudi Aramco’s current quarterly dividend payouts are exceeding cash generation and placing them in a debt situation when Brent prices are below $75/bbl, one would think they would be lobbying heavily not to increase production.
The biggest wildcard going into 2025 will be Iran’s relationship with other world leaders if war continues to escalate with Israel. Keep in mind that Iran exports nearly 1.8 MMbbl/d. If we do see their oil infrastructure damaged, we could see a quick spike to the $90/bbl area for WTI. However, it would likely be short-lived, as the rest of OPEC probably would be happy to fill the void, especially at higher prices.
There’s also the recent U.S. election and energy transition to consider. While the full range of implications are still to be seen, WTI prices below $60/bbl would move production levels lower, while prices north of $75/bbl will continue to encourage drilling.
WTI crude futures continue to consolidate between $63/bbl and $79/bbl. This sideways action probably will continue; however, geopolitical wildcards are very relevant and the consolidation of companies in the production industry will continue. Altogether, this should mean leaner operations, which are even more price sensitive, and more constrained supplies at lower prices. More production with less will be the name of the game, which should keep a positive tone for oil and gas stockholders.
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