European natural gas futures pulled back below €56 per megawatt-hour on Monday, still close to a two-year high of 58.039 per megawatt-hour (MWh) they hit on 10 February. The 10 February settlement price works out to $17.53 per million British thermal units (mmBtu) and $105.19 per barrel of oil equivalent (boe).
The move higher was driven by a rapid tightening in inventories due to colder weather, lower wind power generation due to low wind speeds and the termination of Russian gas imports via Ukraine. Europe’s gas storage was only 49% full on February 10, well below last year’s 67% mark at a corresponding point and the 10-year average of 51% for the same period.
EU inventories stood at 56.95 billion cubic metres (bcm) on 9 February according to Gas Infrastructure Europe (GIE) data, 21.45 bcm lower y/y and 8.09 bcm below the five-year average. The w/w draw to 9 February was 4.9 bcm, 37% higher than the five-year average (3.58 bcm) and almost twice the draw for the same period last year (2.5 bcm). Cessation of Russian gas transit through Ukraine accounted for the bulk of the m/m reduction (1.47 bcm), although a 0.824 bcm m/m fall in flows from Norway also played a significant role.
Excluding transit flows, EU imports of Russian pipeline gas totaled just 1.362 bcm in January 2025, 90% lower than in January 2021. Commodity analysts at Standard Chartered have projected that If temperatures for the rest of the northern hemisphere winter were to normalize, inventories would finish March at close to 44 bcm, while a continuation of the recent larger-than-usual draws would result in an end-season inventory level of 39.1 bcm. The latter forecast for the end-season minimum would be 29 bcm less than last year’s number, but ~10 bcm higher than in 2022 in the immediate wake of Russia’s invasion of eastern Ukraine.
StanChart has come up with another interesting finding: high gas prices are suppressing industrial demand. The analysts say there’s evidence that price-elastic European industrial gas demand fell significantly in January, particularly in the second half of the month when demand indications were surprisingly weak given the cold weather. StanChart estimates that EU gas demand averaged 1.469 bcm/d in January, good for a y/y increase of just 4 million cubic metres per day (mcm/d). The small 0.3% y/y increase represents a sharp deceleration from growth of 10.4% in November and 6.8% in December. According to StanChart, the sharp slowdown in demand growth despite lower temperatures suggests that some price-sensitive demand may have fallen away.
U.S. Crude Output Increases
The latest Energy Information Administration (EIA) weekly data was neutral according
to StanChart’s proprietary U.S. oil data bull-bear index, which fell 24.3 w/w to -7.6. The run without a bearish reading now totals five weeks; with just a single bearish reading over the past 11 weeks; three neutral readings and seven bullish readings. Crude oil inventories began their usual seasonal increase a week earlier than usual, adding 8.66 million barrels (MB) w/w to 423.79 mb, although crude oil inventories at WTI’s pricing hub at Cushing, Oklahoma, fell by 0.03 mb to 20.95 mb. Product inventories fell 11.37 mb to 786.85 MB with distillate inventories losing 5.47 mb to 118.48 mb, 16.90 mb below the five-year average.
The EIA estimates that U.S. crude output increased 238 kb/d w/w to 13.478 mb/d, effectively reversing all of the previous week’s weather-related 237 thousand barrels per day (kb/d) fall. However, StanChart says demand indications remain very strong, with the demand sub-index of its bull-bear index registering ‘highly bullish’ for the second consecutive week and the fourth week in the past eight. The initial readings for January demand are higher y/y for all product categories, with total demand higher y/y by 4.7%, gasoline demand higher by 0.4% and distillate demand higher by 8.6%.
A cross-section of Wall Street has expressed concerns that a second Trump term could negatively impact oil prices, with producers eager to drill and produce more when unencumbered by perceived Biden-era bureaucracy. However, another section of Wall Street is now arguing that this narrative is flawed. According to commodity experts at Standard Chartered, U.S. oil production, and particularly unconventional (shale oil) production, has changed significantly from the time Trump first took office in 2017.
StanChart points out that U.S. crude production has increased by 4.7 mb/d since the pandemic-era low of May 2020; however, it’s just 0.4 mb/d higher than the pre-pandemic high of November 2019, working out to an annual production growth rate of just 80 thousand barrels per day (kb/d) over this timeframe. Further, the growth clip is forecast to continue to slow down in the current year. U.S. liquids supply increased by 1.605 mb/d in 2023, but StanChart forecast growth of just 630 kb/d in 2024, slowing further to 300 kb/d in 2025.
By Alex Kimani fo Oilprice.com
