Crude prices have whipsawed in recent months, rising and falling by over USD 10 per barrel in just a few weeks. In the gas market, trader activity has been similarly frenetic. In our latest insight piece, we ask our energy economist Matthew Cunningham about the latest trends blowing the oil- and gas-market weathervanes.
The Oil Market
Oil prices slumped in Q3. What drove the decline?
Simply put, the decline in Q3 was because oil investors lost faith in OPEC+’s ability to marshal the market. In early September, for the first time on record, the net position of hedge funds on the ICE exchange turned short from long. Oil demand from China is decelerating, but OPEC+ remains committed to hiking its output from December onward; the cartel’s unity is teetering, with Angola having left in January, the UAE fighting for a higher oil quota, and other members exceeding their allowed production levels.
How are geopolitics impacting supply and demand fundamentals?
The geopolitical situation is mostly supportive of oil prices, with conflict in Eastern Europe and the Middle East reducing the level of crude supply and raising the risk of it falling further. In focus at the moment is the conflict between Israel and Iran, which could deteriorate into a full-blown war, with President Joe Biden saying recently that the U.S. was discussing potential strikes with Israel against Iranian oil facilities.
What are you watching heading into Q4 and beyond?
At the moment, the eye of most oil analysts is locked on the Iran-Israel conflict, with crude prices surging the most in over a year in the week to 4 October. That said, traders will also be looking out for future OPEC+ meetings, along with economic data from China and monetary policy decisions by the U.S. Fed.
Will the upcoming U.S. election impact the market? How?
A Harris win would likely signify the continuation of the status quo, whereas a Trump win may boost oil prices by reducing global supply and raising domestic demand. On the supply side, Trump could tighten sanctions against oil producers Iran and Venezuela, a strategy he pursued during his last mandate; on the demand side, Trump could scrap regulations and tax credits encouraging the production of electric vehicles, in turn raising demand for gasoline and therefore crude oil. Trump is also vocal about wanting to boost domestic crude production, stating if he were “a dictator for a day,” he would use his power “for drilling and for closing the border”, though government policy typically only has a limited impact on U.S. output.
The Natural Gas Market
What were the main trends that impacted gas prices in Q3?
As is generally the case, U.S. natural gas prices were largely influenced by domestic developments. They fell in Q3 from Q2 on average, but only by 10 cents. Prices sank in July due to a combination of extremely high inventories and the closure of Freeport, a major LNG export terminal; however, since then, they have trended upward, aided by a hot summer, decelerating production amid a record-low gas-rig count, and the reopening of the Freeport LNG terminal.
How is geopolitical uncertainty affecting the natural gas market?
The impact on the U.S. natural gas market from geopolitics is largely due to spillovers from the Asian and European natural gas markets; to fuel natural gas demand, these two regions rely heavily on LNG imports, including from the U.S. In particular focus is the war in Ukraine; Kyiv has refused to extend a gas-supply agreement with Russia—which remains a major supplier to Europe—beyond the end of this year.
Will the outcome of the U.S. election impact the natural gas market?
The impact of the U.S. election will be largely felt on the demand side. In January, President Biden froze the issuance of new licenses for LNG exports; shipments of the fuel are expected by market analysts to soar in the coming years and push up U.S. natural gas prices in turn. Trump has stated he will undo the freeze if he is elected as President, which would be bullish for natural gas prices.
What are the trends to watch in Q4? 2025?
In Q4 in the U.S., aside from the election, the weather will remain a key factor to watch; last winter was warm, supporting inventories and setting the stage for the relatively bearish market seen so far in 2024. A normal 2024/25 winter would help whittle down stocks to more typical levels, supporting a recovery in prices. In 2025, weather will remain key to track, along with geopolitics, U.S. economic growth and demand from Asia and Europe.
Written by Matt Cunningham, Editor & Economist