Author: Leonard Herchen & Yuchen Wang
Overview
Oil prices experienced a notable decline in the third quarter of 2024, dropping from above $80 to below $70. This decrease was influenced by weaker demand, global economic concerns, and the impact of monetary tightening by central banks, which altered energy consumption patterns as well as economic weakness in China. In addition, China is reducing diesel consumption by moving to LNG fueled trucks. Strong production in Canada, USA and Guyana are also influencing supply levels. As always, the oil market continues to experience considerable volatility, driven by geopolitical developments, fluctuations in supply and demand, and broader economic trends.
In the natural gas sector, Henry Hub prices fluctuated in the previous quarter but generally remained low. Prices started the quarter at around $2.12 per MMBtu in mid-July, fell further in August, reaching a low of approximately $1.85 by late August. However, as September approaches its end, prices have gradually risen again to $2.61.
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
Amid ongoing pressures in the oil market, we expect WTI prices to stabilize around $71 per barrel and Brent crude at approximately $75 per barrel for the remainder of 2024. These price levels reflect persistent concerns regarding weak economic indicators that continue to affect market sentiment. Although occasional inventory drawdowns typically provide upward pressure on prices, the prevailing economic conditions have led to a more cautious outlook.
One notable development is the integration of the WTI Midland blend into Brent pricing, which has influenced perceptions of crude quality and market accessibility, thereby impacting pricing dynamics of the two benchmarks. This change could provide some support for Brent prices as WTI Midland continues to find its place in the global market. Analysts are monitoring these trends closely and suggest that this may lead to a more stable and narrower Brent-WTI differential.
Despite the current challenges, GLJ analysts remain cautiously optimistic about the long-term outlook, maintaining a long-term real price forecast of $74 per barrel for WTI. This projection suggests that as global economic conditions improve and demand stabilizes, the market could recover its strength.
Natural Gas Prices
The recent upward trend in Henry Hub prices, observed in Q3, is expected to continue, primarily due to slower-than-anticipated storage growth heading into the winter season. GLJ forecasts suggest that Henry Hub prices will stabilize around $2.70 per MMBtu for the remainder of the year. This projection is shaped by expectations of a warmer-than-average winter, which may reduce demand for natural gas for heating. However, with tight supply conditions and robust export demand, particularly for U.S. LNG, these factors will continue to support prices at elevated levels.
In contrast, AECO prices are projected to remain low throughout the rest of 2024, hovering around $1 to $1.50 due to an oversupply of natural gas, with storage facilities in Alberta nearing full capacity. Analysts predict a potential recovery in prices once colder winter weather sets in LNG Canada ramps up exports. However, until this demand shift occurs, the market is expected to stay under pressure.
Meanwhile, European gas prices have experienced a recent rebound, driven by upward revisions in demand forecasts during uncertain supply conditions. This resurgence has led to both the NBP and TTF prices trading at elevated premium levels. Persistent supply risks, coupled with reduced gas consumption across the region, contribute to the ongoing volatility in pricing.
Heavy Crudes
All eyes have been on the Western Canadian Select (WCS) differentials as the Trans Mountain Expansion project went operational in Q2 2024. The ramp-up of crude shipments to the West Coast has been impressive. According to the Canadian Energy Regulator (CER), the Trans Mountain system moved 705 mb/d in June 2024, a significant jump from the historical average of around 300 mb/d, though still below the full capacity of 890 mb/d.
A graph of WCS differentials, measured as a percentage of WTI, over the past five full calendar years and into 2024, shows that recent differentials are at the higher end of historical ranges:
The early data are encouraging. If WCS continues to trade at narrower differentials through the winter and spring, the benefits of the Trans Mountain expansion will become clear—not only in terms of increased volume, but through improved price differentials. This advantage, however, may persist only until excess capacity on both the Trans Mountain and Enbridge systems is fully utilized.
As promised, we have expanded our analysis this quarter to include new heavy crude grades: Western Canadian Blend (WCB), Western Canada Dilbit (WDB), Access Western Blend (AWB), and Cold Lake (CL). Incorporating these grades will allow for better insights into pricing trends, market demand, and the overall impact on the heavy crude sector. This data will be valuable for stakeholders looking to navigate the complexities of heavy crude trading in the current market environment.
GLJ’s forecast values for key benchmarks is as follows:
