Commodities
Oil market still set to tighten in second half of 2024 – UBS
Investing.com – The major energy agencies have all recently made revisions to the likely oil balances this year and next, but they still point to the crude market tightening in the second half of 2024, according to UBS.
These revisions included a bearish update from the International Energy Agency, seeing lower demand growth, a bullish update from the Energy Information Administration, with higher demand, and a neutral one from the Organization of Petroleum Exporting Countries.
“With the extension of the OPEC+ voluntary cuts, the IEA and EIA see market tightness persisting for the rest of the year assuming that OPEC+ production will increase only marginally,” analysts at UBS said, in a note dated June 18.
The agencies made mixed revisions to demand growth forecasts this month: the IEA cut forecasts, the EIA raised and OPEC left them unchanged again.
The IEA’s downward revision was driven by weaker OECD and base effects, while the EIA also noted lackluster OECD demand, but raised forecasts on increased bunker fuel demand caused by Red Sea disruptions.
With this in mind, “we marginally cut demand growth estimates to 1.1Mb/d in 2024 and 1.0Mb/d in 2025,” UBS said.
Turning to supply, the agencies kept their non-OPEC+ supply forecasts broadly unchanged, except for the EIA’s 2024 growth estimates, up 0.1 million barrels a day (b/d) on better-than-expected U.S. supply in 1H24.
Additionally, despite OPEC+’s announced plan to gradually phase out its voluntary cuts potentially as early as October 2024, we continue to model the first return of OPEC+ barrels in the second quarter of 2025 when market balances should allow for a gradual ramp-up.
In the very near term, UBS expects to rebound to the mid to high-$80s, supported by the OPEC+ cuts extension and the seasonal rebound in demand.
Brent is then set to move to $80/bbl next year as OPEC+ starts to bring back production gradually from the second quarter.
“We do expect a negative impact on oil demand from slower GDP growth and higher prices but continue to expect demand to grow until the late 2020s,” UBS said.
Rising efficiency and EVs’ increasing impact should see demand growth slow down sharply though, to around 0.5Mb/d within 3-4 years and peak oil by 2029. Despite this demand slowdown, we expect global spare capacity to remain stable at an average level by historical standards as supply growth slows down too.
In the near term, we see the main upside risks coming from more restricted supply.
“Extended OPEC+ cuts and potentially a larger drop in Russian production, combined with robust demand could lift Brent above $90/bbl in the near-term in our view. Further escalation in the Middle East and disruption to supply could send it closer to $100/bbl,” UBS added.
The bank’s downside scenario assumes a greater negative impact on oil demand from a global economic slowdown to the tune of around 1.0Mb/d versus its forecasts.
“Combined with a reduced geopolitical risk premium, this could see Brent prices drop below our long-term oil price of $75/bbl.”
Commodities
Natural gas prices outlook for 2025
Investing.com — The outlook for prices in 2025 remains cautiously optimistic, influenced by a mix of global demand trends, supply-side constraints, and weather-driven uncertainties.
As per analysts at BofA Securities, U.S. Henry Hub prices are expected to average $3.33/MMBtu for the year, marking a rebound from the low levels seen throughout much of 2024.
Natural gas prices in 2024 were characterized by subdued trading, largely oscillating between $2 and $3/MMBtu, making it the weakest year since the pandemic-induced slump in 2020.
This price environment persisted despite record domestic demand, which averaged over 78 billion cubic feet per day (Bcf/d), buoyed by increases in power generation needs and continued industrial activity.
However, warm weather conditions during the 2023–24 winter suppressed residential and commercial heating demand, contributing to the overall price weakness.
Looking ahead, several factors are poised to tighten the natural gas market and elevate prices in 2025.
A key driver is the anticipated rise in liquefied natural gas (LNG) exports as new facilities, including the Plaquemines and Corpus Christi Stage 3 projects, come online.
These additions are expected to significantly boost U.S. feedgas demand, adding strain to domestic supply and lifting prices.
The ongoing growth in exports to Mexico via pipeline, which hit record levels in 2024, further underscores the international pull on U.S. gas.
On the domestic front, production constraints could play a pivotal role in shaping the price trajectory.
While U.S. dry gas production remains historically robust, averaging around 101 Bcf/d in 2024, capital discipline among exploration and production companies suggests a limited ability to rapidly scale output in response to higher prices.
Producers have strategically withheld volumes, awaiting a more favorable pricing environment. If supply fails to match the anticipated uptick in demand, analysts warn of potential upward repricing in the market.
Weather patterns remain a wildcard. Forecasts suggest that the 2024–25 winter could be 2°F colder than the previous year, potentially driving an additional 500 Bcf of seasonal demand.
However, should warmer-than-expected temperatures materialize, the opposite effect could dampen price gains. Historically, colder winters have correlated with significant price spikes, reflecting the market’s sensitivity to heating demand.
The structural shift in the U.S. power generation mix also supports a bullish case for natural gas. Ongoing retirements of coal-fired power plants, coupled with the rise of renewable energy, have entrenched natural gas as a critical bridge fuel.
Even as wind and solar capacity expand, natural gas is expected to fill gaps in generation during periods of low renewable output, further solidifying its role in the energy transition.
Commodities
Trump picks Brooke Rollins to be agriculture secretary
WASHINGTON (Reuters) -U.S. President-elect Donald Trump has chosen Brooke Rollins (NYSE:), president of the America First Policy Institute, to be agriculture secretary.
“As our next Secretary of Agriculture, Brooke will spearhead the effort to protect American Farmers, who are truly the backbone of our Country,” Trump said in a statement.
If confirmed by the Senate, Rollins would lead a 100,000-person agency with offices in every county in the country, whose remit includes farm and nutrition programs, forestry, home and farm lending, food safety, rural development, agricultural research, trade and more. It had a budget of $437.2 billion in 2024.
The nominee’s agenda would carry implications for American diets and wallets, both urban and rural. Department of Agriculture officials and staff negotiate trade deals, guide dietary recommendations, inspect meat, fight wildfires and support rural broadband, among other activities.
“Brooke’s commitment to support the American Farmer, defense of American Food Self-Sufficiency, and the restoration of Agriculture-dependent American Small Towns is second to none,” Trump said in the statement.
The America First Policy Institute is a right-leaning think tank whose personnel have worked closely with Trump’s campaign to help shape policy for his incoming administration. She chaired the Domestic Policy Council during Trump’s first term.
As agriculture secretary, Rollins would advise the administration on how and whether to implement clean fuel tax credits for biofuels at a time when the sector is hoping to grow through the production of sustainable aviation fuel.
The nominee would also guide next year’s renegotiation of the U.S.-Mexico-Canada trade deal, in the shadow of disputes over Mexico’s attempt to bar imports of genetically modified corn and Canada’s dairy import quotas.
Trump has said he again plans to institute sweeping tariffs that are likely to affect the farm sector.
He was considering offering the role to former U.S. Senator Kelly Loeffler, a staunch ally whom he chose to co-chair his inaugural committee, CNN reported on Friday.
Commodities
Citi simulates an increase of global oil prices to $120/bbl. Here’s what happens
Investing.cm — Citi Research has simulated the effects of a hypothetical oil price surge to $120 per barrel, a scenario reflecting potential geopolitical tensions, particularly in the Middle East.
As per Citi, such a price hike would result in a major but temporary economic disruption, with global output losses peaking at around 0.4% relative to the baseline forecast.
While the impact diminishes over time as oil prices gradually normalize, the economic ripples are uneven across regions, flagging varying levels of resilience and policy responses.
The simulated price increase triggers a contraction in global economic output, primarily driven by higher energy costs reducing disposable incomes and corporate profit margins.
The global output loss, though substantial at the onset, is projected to stabilize between 0.3% and 0.4% before fading as oil prices return to baseline forecasts.
The United States shows a more muted immediate output loss compared to the Euro Area or China.
This disparity is partly attributed to the U.S.’s status as a leading oil producer, which cushions the domestic economy through wealth effects, such as stock market boosts from energy sector gains.
However, the U.S. advantage is short-lived; tighter monetary policies to counteract inflation lead to delayed negative impacts on output.
Headline inflation globally is expected to spike by approximately two percentage points, with the U.S. experiencing a slightly more pronounced increase.
The relatively lower taxation of energy products in the U.S. amplifies the pass-through of oil price shocks to consumers compared to Europe, where higher energy taxes buffer the direct impact.
Central bank responses diverge across regions. In the U.S., where inflation impacts are more acute, the Federal Reserve’s reaction function—based on the Taylor rule—leads to an initial tightening of monetary policy. This contrasts with more subdued policy changes in the Euro Area and China, where central banks are less aggressive in responding to the transient inflation spike.
Citi’s analysts frame this scenario within the context of ongoing geopolitical volatility, particularly in the Middle East. The model assumes a supply disruption of 2-3 million barrels per day over several months, underscoring the precariousness of energy markets to geopolitical shocks.
The report flags several broader implications. For policymakers, the challenge lies in balancing short-term inflation control with the need to cushion economic output.
For businesses and consumers, a price hike of this magnitude underscores the importance of energy cost management and diversification strategies.
Finally, the analysts cautions that the simulation’s results may understate risks if structural changes, such as the U.S.’s evolving role as an energy exporter, are not fully captured in the model.
While the simulation reflects a temporary shock, its findings reinforce the need for resilience in energy policies and monetary frameworks. Whether or not such a scenario materializes, Citi’s analysis provides a window into the complex interplay of economics, energy, and geopolitics in shaping global economic outcomes.
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