Oil prices came under significant pressure yesterday, with ICE Brent falling more than 3% over the day. This came amid reports that OPEC+ is considering increasing supply by a further 137k b/d in November. We should get confirmation on 5 October, when the group is set to meet. Our balance sheet clearly suggests additional supply isn’t needed. We expect the market to move into a large surplus in the fourth quarter and remain in surplus through 2026. As a result, we expected oil prices to come under significant pressure over the course of next year.
While the general view is that supply increases from OPEC+ are an attempt to regain market share, the front end of the curve remaining in backwardation will give the group comfort that the market can handle additional supply. As we move into the surplus environment, though, timespreads should come under further pressure.
European natural gas prices also weakened yesterday, with the Title Transfer Facility (TTF) front-month contract settling 1.7% lower on the day. This weakness comes despite some unplanned outages at the Nyhamna processing plant and Troll field in Norway. Instead, the market appears focused on continued weakness in Asian LNG demand, specifically from China. Weaker Chinese LNG demand is expected to help alleviate supply concerns for Europe as the winter period approaches. EU LNG send-outs have been trending higher through much of September, after a somewhat weak August. EU gas storage stands just shy of 83% full, down from 94% at the same stage last year, and below the 5-year average of 89%.