Analys
Natural gas – A Glimpse into Supply, Demand, and Prices

Supply: Recent weather patterns across Europe have been milder than usual, leading to a delayed onset of the heating season. The weather forecast for the next two weeks predicts a continuation of this trend. As a result, EU TTF spot prices have decreased, leading to a reduced volume of LNG imports to Europe in September and early October. Current imports stand at about 3.3 TWh/day, down from 4.0 TWh/day at this time last year, and significantly lower than the 6.0 TWh/day at the beginning of summer 2023.

Although peak maintenance on the Norwegian Continental Shelf (NCS) concluded in mid-September, it is scheduled to continue for another month. Despite this, Norwegian natural gas exports to Europe are encouraging, currently at 2.6 TWh/day, though still below the historical average of 3.4 TWh/day. Meanwhile, Russian supplies have increased marginally from 0.6 TWh/day in mid-summer to 0.85 TWh/day currently, yet they remain 2.65 TWh/day below the historical average. Overall, Europe’s current supply is roughly 8.65 TWh/day, clearly lower than the historical average of 11 TWh/day for this period.
Demand: Last year witnessed a significant decrease in European natural gas demand, which has persisted longer than anticipated. Present consumption rates are slightly lower than last year at 7.5 TWh/day and are 2.5 TWh/day below the historical norm. Current consumption patterns resemble those typically seen in August—a month characterized by European holidays and peak maintenance on the continent’s natural gas infrastructure. The prevailing mild weather is likely to further reduce consumption in the coming weeks. Moreover, industrial gas consumption among the EU’s major consumers (DE, FR, IT, BE, UK, & NL) has remained consistent with October 2022 levels, at 1.9 TWh/day, which is 0.6 TWh/day below historical averages.

Inventories: EU natural gas storage levels are nearing capacity, with current levels at 96.3%, 9.5% higher than the five-year average. This excess has contributed to the decline in spot prices. With storage nearly full, some stored volumes must be sold at discounted rates to accommodate incoming LNG shipments. However, longer-term prices for the upcoming months and winter 2023/24 remain relatively stable. Although concerns about potential shortages for the upcoming winter are lessening, end-of-April 2023 inventory levels will influence the market for the following seasons.

Inventory Outlook: Given the ongoing demand reduction, inventories are expected to remain robust in the short term. However, as the end of the year approaches, projections indicate a convergence towards a more ”normal” inventory level. This means that by year-end, inventories will be 36 TWh above typical levels, a significant reduction from the 259 TWh surplus in early April 2023. Presently, the surplus stands at 116.8 TWh. The trend suggests that inventory levels will approach historical norms, resulting in a tighter EU natural gas market as peak winter approaches.

Price Dynamics: Europe’s mild start to the heating season has proven beneficial, especially during a time of peak maintenance at the NCS and potential risks of decreased global LNG supplies (Australian LNG). The high current inventory levels have significantly minimized the risk of natural gas shortages for the upcoming winter. However, as the heating season progresses, the EU inventory drawdown will be significant.

Current price dynamics reveal that the EU TTF forwards (M+1 and winter 2023/24) have declined “too far” compared to the Japanese LNG price. LNG is, and will continue to be, the marginal supplier of natural gas to Europe.
In 2022, the EU witnessed unprecedented levels of LNG imports. To realize this, the EU natural gas price consistently traded at a premium — averaging EUR 15.6/MWh over the front-month Japanese LNG price throughout the year. By the second half of 2022, this premium escalated to an average of EUR 30/MWh. However, the tables have turned: currently, the EU price is at a discount of EUR 8/MWh to the Japanese LNG price for November (M+1) and EUR 5.5/MWh for Q124.
We foresee this trend as short-lived. We believe that, as winter approaches, the EU TTF natural gas price will not only match but potentially exceed the Japanese LNG price by a premium of EUR 5-10/MWh. In our view, the current EU TTF natural gas forwards are undervalued relative to the Japanese LNG price and will likely see a correction, ensuring the EU continues its robust LNG imports. Standing by our early September Gas price projection, we anticipate the average TTF spot price for Q4 2023 to be around EUR 55/MWh and the aggregate for 2023 to settle at EUR 45.5/MWh.
Analys
Sell the rally. Trump has become predictable in his unpredictability
Hesitant today. Brent jumped to an intraday high of $66.36/b yesterday after having touched an intraday low of $60.07/b on Monday as Indian and Chinese buyers cancelled some Russian oil purchases and instead redirected their purchases towards the Middle East due to the news US sanctions. Brent is falling back 0.4% this morning to $65.8/b.

It’s our strong view that the only sensible thing is to sell this rally. In all Trump’s unpredictability he has become increasingly predictable. Again and again he has rumbled about how he is going to be tough on Putin. Punish Putin if he won’t agree to peace in Ukraine. Recent rumbling was about the Tomahawk rockets which Trump threatened on 10 October and 12 October to sell/send to Ukraine. Then on 17 October he said that ”the U.S. didn’t want to give away weapons (Tomahawks) it needs”.
All of Trump’s threats towards Putin have been hot air. So far Trump’s threats have been all hot air and threats which later have evaporated after ”great talks with Putin”. After all these repetitions it is very hard to believe that this time will be any different. The new sanctions won’t take effect before 21. November. Trump has already said that: ”he was hoping that these new sanctions would be very short-lived in any case”. Come 21. November these new sanctions will either evaporate like all the other threats Trump has thrown at Putin before fading them. Or the sanctions will be postponed by another 4 weeks or 8 weeks with the appearance that Trump is even more angry with Putin. But so far Trump has done nothing that hurt Putin/Russia. We can’t imagine that this will be different. The only way forward in our view for a propre lasting peace in Ukraine is to turn Ukraine into defensive porcupine equipped with a stinging tail if need be.
China will likely stand up to Trump if new sanctions really materialize on 21 Nov. Just one country has really stood up to Trump in his tariff trade war this year: China. China has come of age and strength. I will no longer be bullied. Trump upped tariffs. China responded in kind. Trump cut China off from high-end computer chips. China put on the breaks on rare earth metals. China won’t be bullied any more and it has the power to stand up. Some Chinese state-owned companies like Sinopec have cancelled some of their Russian purchases. But China’s Foreign Ministry spokesperson Guo Jiakun has stated that China “oppose unilateral sanctions which lack a basis in international law and authorization of the UN Security Council”. Thus no one, not even the US shall unilaterally dictate China from whom they can buy oil or not. This is yet another opportunity for China to show its new strength and stand up to Trump in a show of force. Exactly how China choses to play this remains to be seen. But China won’t be bullied by over something as important as its oil purchases. So best guess here is that China will defy Trump on this. But probably China won’t need to make a bid deal over this. Firstly because these new sanctions will either evaporate as all the other threats or be postponed once we get to 21 November. Secondly because the sanctions are explicit towards US persons and companies but only ”may” be enforced versus non-US entities.
Sanctions is not a reduction in global supply of oil. Just some added layer of friction. Anyhow, the new sanctions won’t reduce the supply of Russian crude oil to the market. It will only increase the friction in the market with yet more need for the shadow fleet and ship to ship transfer of Russian oil to dodge the sanctions. If they materialize at all.
The jump in crude oil prices is probably due to redirections of crude purchases to the Mid-East and not because all speculators are now turned bullish. Has oil rallied because all speculators now suddenly have turned bullish? We don’t think so. Brent crude has probably jumped because some Indian and Chinese oil purchasers of have redirected their purchases from Russia towards the Mid-East just in case the sanctions really materializes on 21 November.
Analys
Brent crude set to dip its feet into the high $50ies/b this week
Parts of the Brent crude curve dipping into the high $50ies/b. Brent crude fell 2.3% over the week to Friday. It closed the week at $61.29/b, a slight gain on the day, but also traded to a low of $60.14/b that same day and just barely avoided trading into the $50ies/b. This morning it is risk-on in equities which seems to help industrial metals a little higher. But no such luck for oil. It is down 0.8% at $60.8/b. This week looks set for Brent crude to dip its feet in the $50ies/b. The Brent 3mth contract actually traded into the high $50ies/b on Friday.

The front-end backwardation has been on a weakening foot and is now about to fully disappear. The lowest point of the crude oil curve has also moved steadily lower and lower and its discount to the 5yr contract is now $6.8/b. A solid contango. The Brent 3mth contract did actually dip into the $50ies/b intraday on Friday when it traded to a low point of $59.93/b.
More weakness to come as lots of oil at sea comes to ports. Mid-East OPEC countries have boosted exports along with lower post summer consumption and higher production. The result is highly visibly in oil at sea which increased by 17 mb to 1,311 mb over the week to Sunday. Up 185 mb since mid-August. On its way to discharge at a port somewhere over the coming month or two.
Don’t forget that the oil market path ahead is all down to OPEC+. Remember that what is playing out in the oil market now is all by design by OPEC+. The group has decided that the unwind of the voluntary cuts is what it wants to do. In a combination of meeting demand from consumers as well as taking back market share. But we need to remember that how this plays out going forward is all at the mercy of what OPEC+ decides to do. It will halt the unwinding at some point. It will revert to cuts instead of unwind at some point.
A few months with Brent at $55/b and 40-50 US shale oil rigs kicked out may be what is needed. We think OPEC+ needs to see the exit of another 40-50 drilling rigs in the US shale oil patches to set US shale oil production on a path to of a 1 mb/d year on year decline Dec-25 to Dec-26. We are not there yet. But a 2-3 months period with Brent crude averaging $55/b would probably do it.
Oil on water increased 17 mb over the week to Sunday while oil in transit increased by 23 mb. So less oil was standing still. More was moving.

Crude oil floating storage (stationary more than 7 days). Down 11 mb over week to Sunday

The lowest point of the Brent crude oil curve versus the 5yr contract. Weakest so far this year.

Crude oil 1mth to 3mth time-spreads. Dubai held out strongly through summer, but then that center of strength fell apart in late September and has been leading weakness in crude curves lower since then.

Analys
Crude oil soon coming to a port near you
Rebounding along with most markets. But concerns over solidity of Gaza peace may also contribute. Brent crude fell 0.8% yesterday to $61.91/b and its lowest close since May this year. This morning it is bouncing up 0.9% to $62.5/b along with a softer USD amid positive sentiment with both equities and industrial metals moving higher. Concerns that the peace in Gaza may be less solid than what one might hope for also yields some support to Brent. Bets on tech stocks are rebounding, defying fears of trade war. Money moving back into markets. Gold continues upwards its strong trend and a softer dollar helps it higher today as well.

US crude & products probably rose 5.6 mb last week (API) versus a normal seasonal decline of 2.4 mb. The US API last night partial and thus indicative data for US oil inventories. Their data indicates that US crude stocks rose 7.4 mb last week, gasoline stocks rose 3.0 mb while Distillate stocks fell 4.8 mb. Altogether an increase in commercial crude and product stocks of 5.6 mb. Commercial US crude and product stocks normally decline by 2.4 mb this time of year. So seasonally adjusted the US inventories rose 8 mb last week according to the indicative numbers by the API. That is a lot. Also, the counter seasonal trend of rising stocks versus normally declining stocks this time of year looks on a solid pace of continuation. If the API is correct then total US crude and product stocks would stand 41 mb higher than one year ago and 6 mb higher than the 2015-19 average. And if we combine this with our knowledge of a sharp increase in production and exports by OPEC(+) and a large increase in oil at sea, then the current trend in US oil inventories looks set to continue. So higher stocks and lower crude oil prices until OPEC(+) switch to cuts. Actual US oil inventory data today at 18:00 CET.
US commercial crude and product stocks rising to 1293 mb in week 41 if last nights indicative numbers from API are correct.

Crude oil soon coming to a port near you. OPEC has lifted production sharply higher this autumn. At the same time demand for oil in the Middle-East has fallen as we have moved out of summer heat and crude oil burn for power for air-conditioning. The Middle-East oil producers have thus been able to lift exports higher on both accounts. Crude oil and condensates on water has shot up by 177 mb since mid-August. This oil is now on its way to ports around the world. And when they arrive, it will likely help to lift stocks onshore higher. That is probably when we will lose the last bit of front-end backwardation the the crude oil curves. That will help to drive the front-month Brent crude oil price down to the $60/b line and revisit the high $50ies/b. Then the eyes will be all back on OPEC+ when they meet in early November and then again in early December.
Crude oil and condensates at sea have moved straight up by 177 mb since mid-August as OPEC(+) has produced more, consumed less and exported more.

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