Authors: Leonard Herchen & Yuchen Wang
Overview:
Over the last quarter, oil prices have experienced significant fluctuations. WTI surged above $80, nearly reaching $85, before stabilizing around $78. This volatility has been driven by a mix of supply chain adjustments, geopolitical tensions, and shifts in demand patterns. In the natural gas market, Henry Hub prices have been steadily rising, approaching $3/MMbtu, while AECO remains low due to regional oversupply and infrastructure constraints.
As we move into summer 2024, GLJ’s analysts have made no significant changes to our long-term expected nominal oil and gas prices for key benchmarks. Our long-term real oil price forecast remains at USD $74.00 per barrel in 2024 dollars for WTI. Similarly, we have maintained our long-term real price for Henry Hub at $4.00 per MMBtu in 2024 dollars.
Oil Prices
For the rest of 2024, we anticipate WTI prices to stabilize within the range of $79 to $81, assuming no major disruptions in supply. GLJ ‘s long term real price of $74 WTI reflects an assumption of moderate inflation and continued global demand growth.
Similarly, Brent crude has demonstrated resilience despite global uncertainties. The integration of WTI Midland blend into Brent benchmarks introduces a new dynamic in the global oil market. This strategic move addresses historical supply and pricing issues affecting the Brent benchmark, enhancing its representativeness and reliability, and potentially supporting Brent prices. We forecast Brent to hover between $83 and $85 per barrel through the end of the year.
The completion of the Trans Mountain Expansion (TMX) project is poised to significantly impact WCS prices. While we observe the usual seasonal widening in the WCS-WTI differential, we believe that this differential would have been even wider without the additional capacity provided by TMX.
Natural Gas Prices
The recent upward trend in Henry Hub prices is expected to persist, driven by strong demand for natural gas, particularly for power generation and LNG exports. We anticipate Henry Hub prices to stabilize between $3 and $3.50 for the remainder of the year with the expectation of warmer-than-average weather over the northern part of the U.S.
In contrast, AECO prices are expected to remain low throughout the rest of 2024. While some improvement is expected with ongoing pipeline enhancements, current storage level suggests that AECO is likely to continue trading at a significant discount to Henry Hub, hovering around $1 to $2.50.
European gas prices have seen near-term increases, driven by supply concerns and the geopolitical landscape. We expect these prices to remain elevated, with NBP and TTF trading at premium levels due to persistent supply risks and storage challenges.
Inflation and Exchange Rates
We have revised our CAD/USD forecast downward. The long-term projection has been adjusted to 0.76 from the previous estimate of 0.765. This revision reflects the Canadian dollar’s relative weakness due to subdued economic growth and external pressures.
US CPI has proven especially resistant to move below 3%.
Looking ahead, we are excited to introduce new heavy crude grades to our analysis in the next quarter, including Western Canadian Blend (WCB), Western Canada Dilbit (WDB), Access Western Blend (AWB), and Cold Lake Blend (CL). These additions will provide a more comprehensive view of the heavy crude market.
