⚡European Gas Pain

February 12, 2025

Morning,

I’ve got an ask today.

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Busy day today with both CPI and EIA inventory data. Yesterday Powell kicked off his testimony in front of the Senate Banking Committee by reiterating that the Fed is not feeling much pressure to change it’s ‘wait and see’ approach to rate cuts at the moment.

“We’re in a pretty good place with this economy. We want to make more progress on inflation. And we think our policy rate is in a good place, and we don’t see any reason to be in a hurry to reduce it further,”

CME Fedwatch now shows a 95% chance of rates holding steady in March and 78% chance in May. June remains a toss-up, however the probability of holding rates at the current level has increased from 36% to 49% in the last week.

~Doug​

What's in this issue:

• Energy Market Recap

• EIA Expectations

• European Gas Pain

• Headlines

ENERGY MARKETS

🛢️Oil prices were up by 1.4% yesterday as prices continue to rebound. While tariffs and general chaos in the global economy are increasingly expected to hurt growth prospects, you can not completely discount headline risk to the upside.

Whether it’s sanctions on Iran and Russia seen as biting into exports or Venezuela getting its turn in the crosshairs, all it takes is a tweet.

Andy Lebow at Commodity Research Group has the following expectations for the EIA inventory numbers due later today:

WTI Spreads

Mar/Apr: +0.24
Mar/Dec: +3.65
Dec5/Dec6: +2.85

🔥Natural gas prices ended higher by 2% as prices continue to make a steady march towards January’s highs. Ongoing heating demand has led to expectations of more inventory draws in the weeks ahead.

As NatGasWeather.com states:

“Several frosty weather systems will track across the US over the next 11-days for strong national demand and to increase deficits further.”

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EUROPEAN GAS PAIN

Europe is experiencing high gas and electricity prices that are inflicting pain on both residential and business consumers.

Nat gas prices have doubled from early 2024 when the market was well-supplied due to two consecutive winters with relatively low heating demand. Everyone knew that in the wake of Russia’s invasion of Ukraine, this was a fluke.

But the luck has run out.

Already, prices for summer gas have risen above prompt prices as the market is already anticipating the need to refill inventories.

Without pipeline gas available from Russia, Europe is increasingly reliant on expensive LNG imports, predominantly from the US. LNG imports now account for over a third of gas supplies versus 20% in 2021.

Helge Haugane, the head of gas and power trading at Equinor told Bloomberg News that the EU may need upwards of 350 additional LNG shipments this year.

HEADLINES

“There's so much we don't know. We don't know if they will go in place. We don't know if there will be exemptions at all,”
+Executives plot strategy to deal with 'cost and chaos' of Trump tariffs - Reuters

“unlike the Permian (and a large swath of the Eagle Ford), where gas is produced largely as a byproduct of oil, and thus sensitive to oil prices, the Haynesville (along with parts of the southern Eagle Ford) is primarily a gas-producing region, and is correspondingly sensitive to gas prices.”
+Sitting, Waiting, Wishing - Haynesville Gas Producers Hold Steady Ahead of Expected LNG Export Surge - RBN Energy

“Chevron's reserves, or the amount of oil and gas that it can potentially extract, declined from 11.1 billion barrels of oil equivalent in 2023 to 9.8 billion by the end of 2024. The reserves also declined in part due to sales of acreage.”
+Chevron struggles to replace oil, gas reserves amid Hess deal limbo - Reuters

“The oil major also posted a 61% drop in fourth-quarter profits, year-on-year, to the weakest since the fourth quarter of 2020, when pandemic lockdowns shrank demand for oil.”
+BP pledges strategy reset as annual profit falls by a third - Reuters

“Solar installations have decreased in price from more than $100 per installed watt to under $1 within four decades, with every doubling of global solar capacity cutting prices by about 20 per cent.”
+Business school teaching case study: how should solar-panel makers respond to falling prices? - FT

“Beijing has 23 bilateral space partnerships in Africa, including funding for satellites and ground stations to collect satellite imagery and data, according to the United States Institute of Peace, a think tank.”
+China builds space alliances in Africa as Trump cuts foreign aid - Reuters

ECONOMIC CALENDAR

Monday -
Tuesday -
Wednesday - CPI, Crude Oil Storage Report
Thursday - Natural Gas Storage Report, Jobless Claims, PPI
Friday - Retail Sales