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Energy Investing Outlook 2024 and Energy Stocks to Watch
Uranium Price Update: Q1 2024 in Review
The uranium spot price displayed volatility in Q1, rising to a high unseen since 2007 before ending the quarter below US$90 per pound. U3O8 values shed 3.96 percent over the three month period, but experts believe fundamentals remain strong and expect the sector to benefit from various tailwinds in the months ahead.
Supply remains a key factor in the uranium landscape, with a deficit projected to grow amid production challenges. With annual output well below the current demand levels, the supply crunch is expected to be a long-term price driver.
“Supply-side fragility continued to be one of the key themes in Q1, especially the news out of Kazakhstan that production would be significantly lower than expected in 2024 than previously thought,” Ben Finegold, associate at London-based investment firm Ocean Wall, told the Investing News Network in an interview.
These favorable fundamentals are expected to support uranium prices for the remainder of the year.
Finegold also noted that spot market activity highlights how sensitive the sector is to supply challenges.
“Spot market prices have also been a key talking point as volatility in pricing has increased dramatically in Q1 to both the upside and downside,” he explained. “It has brought to light just how thinly traded the spot market is, but interestingly term prices have only continued to rise, which is indicative that the long-term fundamentals remain intact.”
Sulfuric acid shortage impeding supply growth
The U3O8 spot price opened the year at US$91.71 and edged higher through January 22, when values hit a 17 year high of US$106.87. However, the near two decade record was short lived, and by month’s end uranium was around US$100.
Uranium price, Q1 2024.
Chart via Cameco.
Some of the price positivity early in the quarter came as Kazatomprom (LSE:KAP,OTC Pink:NATKY) warned that it was expecting to adjust its 2024 production guidance due to “challenges related to the availability of sulfuric acid.”
The state producer and major uranium player confirmed the reduction on February 1, underscoring the importance of sulfuric acid in its in-situ recovery method and describing its efforts to secure supply.
“Presently, the company is actively pursuing alternative sources for sulfuric acid procurement,” a press release states.
“Looking ahead in the medium term, the deficit is expected to alleviate as a result of the potential increase in sulphuric acid supply from local non-ferrous metals mining and smelting operations. The company also intends to enhance its in-house sulfuric acid production capacity by constructing a new plant.”
In 2023, Kazatomprom initiated the establishment of Taiqonyr Qyshqyl Zauyty to oversee the construction of a new sulfuric acid plant capable of producing 800,000 metric tons annually.
In the years ahead, the company is aiming to bolster its sulfuric acid production capacities through existing partnerships to achieve a consolidated production volume of approximately 1.5 million metric tons.
In the meantime, disruptions to Kazakh output will only grow the market deficit.
According to the World Nuclear Association, total global uranium production in 2022 only satiated 74 percent of global demand, a number that is likely to shrink as nuclear reactors in Asian countries begin coming online.
“Kazakhstan is the largest producer of uranium in the world — 44 percent. We like to think of Kazakhstan as the OPEC of uranium,” John Ciampaglia, CEO of Sprott Asset Management, said during a recent webinar.
Kazatomprom forecasts its adjusted uranium production for 2024 will range between 21,000 and 22,500 metric tons on a 100 percent basis, and 10,900 to 11,900 metric tons on an attributable basis. While in line with the company’s 2023 output, the major had to forgo a production ramp up due to the sulfuric acid shortage and development issues.
Analysts and market watchers foresee the sulfuric acid shortage being a long-term price driver.
“The sulfuric acid issue in Kazakhstan is a systemic problem that we do not believe will go away any time soon,” said Finegold. “While the company is doing what they can to alleviate pressures on sulfuric acid supplies, we believe their ability to ramp up production will be hindered for several years before their third domestic plant comes online. As such, we do not see Kazakh uranium production increasing significantly over the next three to four years.”
COP28 nuclear commitment supporting demand
The U3O8 spot price spiked again in early February, reaching US$105 before another correction set in.
As Finegold explained, some of the retraction was the result of profit taking from short-term holders.
“Financial speculators looking to lock in profits towards March year ends played a role, but as we know these moves are achieved on very little volume, so the point remains that the long-term thesis remains unchanged,” he said.
Finegold went on to highlight the different investment perspectives within the market.
“Spot market participants trade on very different parameters and time horizons to one another,” he said. “A trader and a hedge fund, for example, act in a totally different manner to a utility who are long-term thinkers.”
Despite February's slight contraction, uranium prices have remained elevated above US$80.
Some of this long-term support is the result of a COP28 nuclear capacity declaration. At the organization's December meeting in Dubai, more than 20 countries signed a proclamation to triple nuclear capacity by 2050.
There are currently 440 operational nuclear reactors with an additional 13 slated to come online this year and another 47 expected to start electricity generation by 2030. For Finegold, this commitment to building and fortifying nuclear capacity has been uranium's most prevalent demand trend. “The demand side of the equation remains robust and growing at a time when the supply side has never been more fragile,” he commented.
Others also believe the COP28 commitment was a tipping point for the uranium market that spawned several announcements about mine restarts and project extensions.
“Governments around the world have acknowledged that they need to be more supportive, not just financially, but in terms of expediting new projects, expediting the environmental permitting processes for new uranium mines,” said Sprott’s Ciampaglia during the webinar. “And it's not just happening in one country — with the exception of one or two outliers in Europe, this is happening around the globe.”
Geopolitical risk and resource nationalism are price catalysts
Uranium prices continued to consolidate from mid-February through mid-March, but remained above US$84.
This positivity saw several uranium companies in the US, Canada and Australia announce plans to bring existing mines out of care and maintenance. In late November, uranium major Cameco( TSX:CCO,NYSE:CCJ) announced it was restarting operations at its McArthur River/Key Lake project in Saskatchewan after four years.
In January, the McClean Lake joint venture which is co-owned by Denison Mines (TSX:DML,NYSEAMERICAN:DNN) and Orano Canada, reported plans to restart its McClean Lake project, also located in the Athabasca Basin of Saskatchewan.
South of the border, exploration company IsoEnergy (TSXV:ISO,OTCQX:ISENF) is gearing up to restart mining at its Tony M underground mine in Utah. “With the uranium spot price now trading around US$100 per pound, we are in the very fortunate position of owning multiple, past-producing, fully permitted uranium mines in the U.S. that we believe can be restarted quickly with relatively low capital costs," IsoEnergy CEO and Director Phil Williams said in a February release.
Building North American capacity is especially important ahead of the global nuclear energy ramp up and the ongoing geopolitical tensions between Russia and the west. While nuclear power is used to provide nearly 20 percent of America's electricity, the nation produces a very small amount of the uranium it needs.
Instead, the country imports as much as 40.5 million pounds annually.
According to the US Energy Information Administration, 27 percent of imports come from ally nation Canada, while 25 percent of imports come from Kazakhstan and 11 percent originate in Uzbekistan — both considered allies of Russia.
Commenting on that topic, Finegold noted, “The ongoing talk around US sanctions remains the most significant geopolitical catalyst for the sector." He added, "While we do not believe sanctions could be enforced immediately, it will send a signal to the market that Russia will no longer be involved in the largest uranium market in the world and would inevitably have an impact on fuel cycle component prices.”
If sanctions do limit imports from Russian allies, Finegold expects these countries to form stronger ties to China.
“Outside of this, the relationship between Kazakhstan and China remains one to watch as the Chinese continue their nuclear rollout strategy and look to procure millions of Kazakh-produced pounds,” he added.
Uranium price outlook remains positive
After hitting a Q1 low of US$84.84 on March 18, uranium began to move positively, ending the three month session in the US$88 range. Commitments to nuclear capacity, the energy transition and stifled supply will continue to be the most prevalent market drivers heading into the second quarter and the rest of the year.
“We believe uranium prices will significantly outrun the recent US$107 highs from February in 2024, driven by a fundamental supply/demand imbalance,” said Finegold. “Producers will continue to cover production shortfalls, while utilities struggle to replenish inventory shortages.”
The Ocean Wall associate went on to note, “The inherent appetite of traders and financial speculators will continue to drive prices higher. These demand drivers are converging at a time when supply has never looked more fragile.”
Don’t forget to follow us @INN_Resource for real-time updates!
Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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Uranium Price Update: Q2 2024 in Review
After reaching a 17 year high in January, uranium prices consolidated in Q2, holding above US$82 per pound.
Despite the cooldown, geopolitical tensions, supply concerns and resource nationalism added support to the uranium sector over the 90 day period, preventing the energy fuel from dipping below the US$80 level.
Some analysts believe the correction is part of the uranium market's ongoing bull run.
“Although the price of uranium has appreciated significantly, we’re still well shy of the record US$135 per pound realized in 2007, or US$200 per pound when adjusted for inflation," Steven Schoffstall, director of ETF product management at Sprott, wrote in an April 25 note on uranium's resurgence. "Rising global commitments to nuclear energy and other supporting factors are helping to make uranium a more compelling investment than ever."
Starting the quarter at US$87.26, uranium values had contracted slightly by the end of June to hit US$85.76. While prices moved slightly lower, market fundamentals still favor a higher uranium price in the months and years to come.
Uranium price, Q2 2024.
Chart via Trading Economics.
Schoffstall states that a positive trend working in uranium’s favor is the COP28 commitment to triple nuclear capacity by 2050. Globally, 152 nuclear reactors are currently either under construction or planned.
Additionally, in early January, the UK government announced plans to expedite investment decisions for new nuclear projects, aiming to quadruple its nuclear capacity by 2050. Schoffstall notes that with this expansion, nuclear energy would account for 25 percent of Britain's electricity demand, up from 15 percent previously.
US ban on Russian uranium boosts prices
After holding in the US$86 to US$89 range through April, uranium prices were pushed higher in May by the news that the Biden administration will be banning Russian uranium imports.
“This new law reestablishes America’s leadership in the nuclear sector. It will help secure our energy sector for generations to come," said National Security Advisor Jake Sullivan on May 13.
"And — building off the unprecedented US$2.72 billion in federal funding that Congress recently appropriated at the President’s request — it will jumpstart new enrichment capacity in the United States and send a clear message to industry that we are committed to long-term growth in our nuclear sector."
The decision aligns with goals set last December by the US and its allies, including Canada, France, Japan and the UK, which collectively pledged US$4.2 billion to expand uranium enrichment and conversion capacity.
The US has relied on Russian uranium since the 1993 Megatons to Megawatts program, which involved converting 500 metric tons (MT) of uranium from dismantled Russian nuclear warheads into reactor fuel.
According to the US Energy Information Agency, Russian imports accounted for 12 percent of the nation’s uranium supply in 2022. The new legislation aims to shift this dependenct toward local uranium sourcing.
The announcement raised questions about the US’ ability to source uranium domestically and through allies, which proved beneficial for US-focused producers like Energy Fuels (TSX:EFR,NYSEAMERICAN:UUUU).
Uranium miners bringing supply back online
As countries look to bolster their nuclear energy capacity, issues around future supply are intensifying. In 2022, total global production satiated just 74 percent of global demand, pointing to a sizable shortfall.
If the world intends to meet the COP28 obligation of tripling nuclear capacity, increased uranium production is needed. Some of that supply will come from projects that were curtailed due to weak prices in the 2010s.
Restarting uranium production at these projects will likely prove easier than bringing new projects online due to the decades-long process of getting mines approved. Indeed, several uranium companies in the US, Canada and Australia have already announced plans to restart existing mines due to recent market optimism.
In late November, Cameco (TSX:CCO,NYSE:CCJ) announced it would resume operations at its McArthur River/Key Lake project in Saskatchewan. In January of this year, Denison Mines (TSX:DML,NYSEAMERICAN:DNN) and Orano Canada revealed plans to restart the McClean Lake project, also in Saskatchewan's Athabasca Basin.
On the other side of the border, IsoEnergy (TSXV:ISO,OTCQX:ISENF) is preparing to restart its Tony M underground uranium mine in Utah, with first production slated for 2025.
In Australia, Paladin Energy (ASX:PDN,OTCQX:PALAF) resumed commercial production at its Langer Henrich mine in late March, with the first customer shipment expected in July. The company subsequently released guidance for its 2025 fiscal year, outlining 4 million to 4.5 million pounds of production. Paladin's goal is for Langer Heinrich to reach nameplate production of 6 million pounds annually by the end of the 2026 calendar year.
“Now that uranium prices have returned to more profitable levels, many previously closed mines are taking steps to start producing again,” said Schoffstall in his note. “However, adding to the supply of uranium isn’t as simple as flipping a switch, and increasing uranium production is proving difficult.”
Case in point — the sector’s largest producers have had to reduce their 2024 production guidance.
In 2023, Cameco, the largest pure-play uranium miner by market cap, had to lower the production forecast for its Cigar Lake mine and its McArthur River/Key Lake operations, expecting a nearly 3 million pound shortfall.
Similarly, Kazatomprom, which produces about 44 percent of the world’s uranium, announced in February that it will fall short of its production targets in 2024, and likely in 2025 as well.
These positive long-term fundamentals pushed uranium to a Q2 high of US$93.72 on May 8.
Paladin's Fission offer hints at more M&A
Amid that environment, some producers started looking for uranium deals in June.
Most notable was Paladin's C$1.4 billion offer for Saskatchewan-focused Fission Uranium (TSX:FCU,OTCQX:FCUUF).
“The acquisition of Fission, along with the successful restart of our Langer Heinrich Mine, is another step in our strategy to diversify and grow into a global uranium leader across the top uranium mining jurisdictions of Canada, Namibia and Australia,” said Paladin CEO Ian Purdy in a June 24 press release.
“Fission is a natural fit for our portfolio with the shallow high-grade PLS project located in Canada’s Athabasca Basin. The addition of PLS creates a leading Canadian development hub alongside Paladin’s Michelin project, with exploration upside across all Canadian properties," he continued.
While some market watchers think the deal could open the floodgates for more M&A activity in the sector, others have warned of potential pitfalls like those witnessed during uranium’s last bull market.
During that period, only one major acquisition led to the development of a new uranium mine: China General Nuclear's 2012 purchase of Extract Resources, which resulted in Namibia's Husab mine. Other deals failed to produce viable assets as they were often based on promising geological surveys rather than proven reserves.
This time, industry players are expected to focus on acquiring high-quality, low-cost assets that can withstand market downturns. The Fission deal emphasizes the importance of prioritizing "large single asset scale" properties, Arthur Hyde, partner and portfolio manager at Segra Capital, told Energy Intelligence.
“This is perfectly predictable and probably exactly what the market should be seeing,” he continued during the interview. “I would say that we're kind of in a unique commodity cycle here, where I don't think smaller bolt-on acquisitions will be enough to satiate the supply-demand gap. What I think we're seeing in the Fission deal is a premium for scale and I think that's something that you'll continue to see through the cycle."
Tailwinds seen pushing prices higher
Uranium's May rally was short-lived, with prices returning to rangebound status through June. Values registered a Q2 low of US$82.07 on June 11, but remained in multi-decade high territory.
“Besides being a pause in a longer-term bull market, the uranium spot market has been susceptible to broader factors like broader commodities weakness, seasonal softness and a lack of expected buying activity with the passage of the Prohibiting Russian Uranium Imports Act,” wrote Jacob White, ETF product manager at Sprott Asset Management.
“On the other hand, fundamentals continue to strengthen with nuclear power plant restarts, new builds and a deepening supply deficit. Notably, the spot market may have paused, but the increasingly positive fundamental picture has played out differently for both the term market and uranium miners,” he further explained.
This sentiment was shared by panelists polled by FocusEconomics. They noted that June saw prices fall for the third time in four months, although they remain near the highest levels since the pre-financial crisis bubble in 2007.
This decline likely indicates a market correction, as the spot price has eased this year, while the long-term contract price, which better reflects market fundamentals, has increased.
Against that backdrop, the panelists expect to see prices remain around their highest level in more than a decade for the rest of the year, with a Q4 price forecast of US$91.72. “Over 2024 as a whole, they see prices averaging the highest level since 2007, with the pledge at the December UN COP 28 summit to triple nuclear energy output driving a worldwide push for uranium supply — which is relatively inelastic,” the firm's report reads.
Don’t forget to follow us @INN_Resource for real-time updates!
Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Energy Fuels is a client of the Investing News Network. This article is not paid-for content.
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Oil and Gas Price Update: Q1 2024 in Review
Brent and West Texas Intermediate (WTI) crude prices both fluctuated widely in 2023, but ended the year about where they began. To start off 2024, they trended higher, picking up steam during Q1.
Ongoing tensions stemming from the Russia-Ukraine war led to concerns about potential disruptions in global oil supply, helping to support prices. Global economic conditions, such as inflation concerns, monetary policy decisions and geopolitical tensions in oil-producing regions, played a significant role in shaping oil price movements during the quarter, with Brent and WTI registering 14 percent and 18 percent increases, respectively, over the 90 day session.
Prices were also supported when several OPEC+ countries, including Saudi Arabia, Iraq, the United Arab Emirates, Kuwait and Algeria, extended voluntary production cuts to support oil market stability. Russia also committed to a voluntary production cut of 471,000 barrels per day for the second quarter, alongside reductions in exports.
Eric Nuttall, partner and senior portfolio manager at Ninepoint Partners, said these output cuts in the name of stability impacted oil prices in the first quarter of the year. “Oil volatility has actually fallen,” he said during an April 5 interview.
“You wouldn't know it necessarily when looking at the oil price, but volatility is low. I think you can attribute that to the OPEC cut — one of the biggest goals of OPEC’s intervention into the market was to reduce volatility.”
The actions from OPEC+ were successful, and kept oil prices at between US$70 and US$87 per barrel in Q1.
How did oil prices perform in Q1?
Brent crude reached a 2023 high of US$93.10 on September 11, but prices spent the remainder of the year sliding until bottoming at US$75.80 on December 4. WTI followed a similar trajectory, although it displayed more volatility, reaching a yearly high of US$91.43 in late September 2023 and then slipping to US$68.71 in early December.
Brent crude price, January 2023 to April 2024.
Chart via TradingEconomics.
The upswing in prices in Q1 of this year can be attributed to several factors, according to Nuttall.
First, values were rebounding from a period of low activity, driven by unfounded concerns about weak oil demand and exaggerated fears about increased US shale production.
Second were the OPEC+ production cuts, which played a significant role in reducing oil inventories.
Nuttall explained that typically, demand is weakest at the beginning of the year; this year, however, inventories have only seen a minimal increase compared to the substantial buildup last year. This underscores the effectiveness of OPEC+'s cuts in counteracting the impact of strategic petroleum reserve releases and stabilizing oil prices.
WTI price, January 2023 to April 2024.
Chart via TradingEconomics.
“Lastly, we do have a geopolitical risk premium on the oil price now, I'm guessing US$5 a barrel,” he said.
“We haven't had a risk premium in quite a while. But what we're seeing in the Middle East, what we're seeing (with) Russia, Ukraine, it just fast forwarded where I thought we were going to be — I thought we'd be at US$90 in the summertime, (but) we’re there a few months earlier than I thought," Nuttall added.
US stalls on refilling Strategic Petroleum Reserve
In 2022, the Biden administration sold 180 million barrels of oil from the Strategic Petroleum Reserve (SPR), responding to global turmoil caused by the start of the Russia-Ukraine war.
Since then it has reversed its strategy and is looking to refill the SPR.
On February 26, the US Department of Energy said it wanted to purchase up to 3 million barrels of crude oil for the SPR, aiming to enhance the nation's energy security. However, less than a week later, the administration scrapped two purchases that would have fulfilled that plan, citing high prices.
While Ninepoint’s Nuttall doesn’t think SPR restocking will impact broader oil prices, he was surprised by the government’s decision to refill. “The biggest threat to (US President Joe Biden's) re-election is inflation. And the biggest input to inflation is energy pricing, specifically oil and gasoline,” the expert explained.
“So it was counterintuitive to me, and I think it was purely for political theater that he started to refill it.”
Experts bullish on oil prices long term
A report from FocusEconomics shows that analysts polled by the firm are forecasting a 10 percent decline in Brent and WTI prices over the next decade compared to 2023 levels.
However, prices are anticipated to remain historically high in the near term due to increased demand from China and India. The panelists see Brent crude averaging around US$85 for the remainder of the year.
Nuttall has a more bullish stance, supported by an increase in demand while global inventories are already at multi-year lows. Using the "days of supply" metric, which estimates how many days current inventory levels will last based on the current consumption rate, he expects inventories to reach the “lowest level in history later this year.”
“That's very supportive of a high price,” he said. He sees oil prices remaining in the US$90 range.
Nuttall noted that geopolitical events have accelerated the approach to this price target. In his view, the subsequent trajectory of prices will depend on when Saudi Arabia decides to return barrels and the pace of that return; he is also watching geopolitical developments in the Middle East and Russia.
While there are uncertainties, such as how potential infrastructure damage could impact oil flows, factors like stronger US demand, solid Indian demand and better-than-expected European performance contribute to his bullish outlook.
“But we're not calling for US$150 oil, we just don't think that's reasonable right now," he clarified.
How did natural gas prices perform in Q1?
While oil prices remained relatively stable throughout the first quarter of this year, natural gas prices sank to multi-decade lows, hitting US$1.55 per metric million British thermal units.
The decline has been attributed to a warmer-than-expected winter in the northern hemisphere and ample supply.
Natural gas price, January 2024 to April 2024.
Chart via TradingEconomics.
“Higher LNG production (up by 3 percent y-o-y), together with stronger piped gas deliveries to Europe and China, further eased supply fundamentals and supported demand growth,” states the International Energy Agency.
The market overview from the organization also notes that global natural gas demand was up 2 percent for the quarter, but was more than offset by the production uptick.
Natural gas prices subdued after previous highs
Natural gas prices are expected to remain well below the highs set in 2022, when values neared US$10, propelled by market uncertainty brought on by Russia’s invasion of Ukraine and fears around supply security.
After a steep decline in late 2022, prices remained below US$5 throughout 2023.
Although concerns about Panama Canal and Red Sea disruptions led to speculation about a geopolitical premium, an uptick of this kind has yet to materialize in the natural gas market.
For the remainder of the year, FocusEconomics panelists expect natural gas prices to decrease in Asia and Europe compared to 2023 averages, while remaining steady in the US, staying below the pre-pandemic 10 year average.
Prices could see declines brought on by an abundance in natural gas inventories in all regions, attributed to mild weather conditions from the El Niño pattern and subdued industrial activity.
Europe will continue to be an important region to watch as ongoing sanctions on Russian gas, the continued conflict in Ukraine and supply security trends could add tailwinds to prices.
“The structural deficit in European natural gas has yet to be fully resolved with increased (liquefied natural gas) supply not yet fully making up for lost Russian imports. Thus, European gas prices remain vulnerable to supply interruptions or increases in demand,” analysts at Goldman Sachs (NYSE:GS) told FocusEconomics.
“This is especially the case during winter, when weather-dependent heating comprises the bulk of demand and bouts of cold weather can lead to rapidly falling stocks and higher prices," they added.
Increased US LNG export capacity could facilitate a price convergence among regions by the end of 2025.
“In 2025, US natural gas prices are expected to surpass the pre-pandemic average, with Europe seeing a slight increase and Asia maintaining stability,” FocusEconomics' natural gas market outlook reads. "The absence of El Niño is predicted to boost heating demand, while industrial output growth will drive up consumption.”
Don’t forget to follow us @INN_Resource for real-time updates!
Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
Additional information on Energy stock investing — FREE
Oil and Gas Price Update: Q2 2024 in Review
Prices for Brent and West Texas Intermediate (WTI) crude sank slightly during the second quarter of 2024, shedding 2.68 percent and 2.45 percent, respectively, between April 1 and the end of June.
As prices for oil contracted, natural gas registered a small 0.78 percent gain over the three month period, rising from US$1.81 per metric million British thermal units on April 1 to US$2.59 by June's close.
Keep reading to find out about what moved prices for oil and natural gas in Q2.
Oil prices hit quarterly high before May decline
Brent and WTI prices hit a quarterly high in April, when values touched US$91.13 and US$86.94 per barrel (bbl), respectively. However, those levels proved unsustainable, with prices falling significantly by May 1.
According to a report from the International Energy Agency (IEA), oil price gains in March and early April were were driven by heightened geopolitical tensions and expectations of a tighter supply/demand balance for the rest of the year.
“Brent crude futures breached the symbolic $90/bbl threshold on 5 April, up nearly $8/bbl from early March, reaching the highest level since October 2023, amid heightened tensions between Israel and Iran,” it states.
“Russian refinery outages added to product market unease, while OPEC+ put pressure on some countries to increase compliance with agreed voluntary production cuts through 2Q24," the IEA continues.
Even though global oil demand grew by 1.6 million barrels per day (mb/d) in the first quarter and the economic outlook has improved, the IEA has revised its annual growth forecast down to 1.2 mb/d due to weak deliveries to countries that are part of the Organization for Economic Co-operation and Development (OECD).
Market volatility causes oil price selloff
As other factors began to come into focus, oil prices started to retreat from their year-to-date highs.
By the beginning of May, prices for Brent crude had shrunk by 8.48 percent from their H1 high of US$91.13. Similarly, WTI crude prices had contracted by 8.98 percent from their H1 top of US$86.94.
Calling it a "spring selloff," the IEA said oil prices fell despite a tightening in supply. The drop was most pronounced in the middle distillate markets, with diesel and jet fuel prices declining sharply, a May IEA report explains.
Although there are concerns that production from OPEC+ countries will fall, world oil supply is forecast to rise by 580,000 barrels per day in 2024, reaching a record 102.7 mb/d. This increase will be driven by a 1.4 mb/d rise in non-OPEC+ output, while OPEC+ production is expected to decrease by 840,000 barrels per day due to voluntary cuts.
Some of that increased output may be carried by Canada’s US$25 billion Trans Mountain pipeline expansion, which entered commercial service in May after 12 years of delays.
The 1,150 kilometer pipeline, managed by the federal Trans Mountain, connects the provinces of Alberta and BC, and is expected to transport 890,000 barrels of oil daily to the west coast.
The project has encountered numerous legal challenges, environmental impact assessments and natural disasters that have prolonged its opening for over a decade.
Oil and gas investment on the rise
Canada isn’t the only country investing heavily in the oil sector.
An International Energy Forum (IEF) report shows oil and gas upstream spending rose by US$63 billion year-on-year in 2023, and is seen rising another US$26 billion in 2024, passing US$600 billion for the first time in a decade.
“Upstream investment in 2024 is expected to be more than double 2020’s low of US$300 billion and be well above 2015-2019 levels of US$425 billion,” the organization's June report states.
“More than a third of the spending will come from North America this year. However, Latin America is expected to be the largest source of incremental capex growth in 2024, surpassing North America for the first time since at least 2004.”
Although investment is expected to reach decade-high levels in 2024, the IEF says more money will be needed over the next six years to support rising demand. Its calculations show as much as US$4.3 trillion in investments will be needed between 2025 and 2030. This substantial need for capital expenditure will be driven by projected increases in oil demand, which is expected to rise from 103 mb/d in 2023 to nearly 110 mb/d by 2030.
"More investment in new oil and gas supply is needed to meet growing demand and maintain energy market stability, which is the foundation of global economic and social wellbeing," said Joseph McMonigle, secretary general of the IEF. "Well-supplied and stable energy markets are critical to making progress on climate, because the alternative is high prices and volatility, which undermines public support for the transition as we have seen in the past two years."
The majority of that new investment will go to non-OPEC+ countries, the US and Canada. However, Latin American nations like Brazil and Guyana will also play an integral role in increasingly non-OPEC supply growth.
While increased investment and production in the oil and gas sector may seem at odds with the clean energy transition, the IEF believes the heightened spending supports energy security, ultimately aiding the transition.
"A just, orderly and equitable transition requires a foundation of energy security," it says.
"The past two years have demonstrated the consequences of 'disorderly' transitions: price shocks, shortages, disruptions, political backlash, bitter divisions and conflict."
Experts expect more oil price volatility long term
Oil prices trended lower through to June 4, when Brent hit a Q2 low of US$77.45 and WTI fell to US$73.13.
A subsequent price rise correlated with mounting geopolitical strife between Israel and Iran-backed Hezbollah saw prices end Q2 at US$85.06 for Brent and US$81.58 for WTI, slightly down from their starting position.
Looking at the near term, FocusEconomics is forecasting a slight price rise by Q4 compared to June levels.
“The oil market is set to move into a slight deficit, but, with OPEC+ due to begin winding back output curbs from October, it will do so gradually,” the firm's July consensus forecast report states.
“Key factors to watch include major central banks’ monetary policy, the health of China’s economy, future OPEC+ decisions and geopolitical tensions in Eastern Europe and the Middle East," it continues.
Longer term, the IEA is projecting that oil demand will peak in 2030, near 106 mb/d.
After that, the electric vehicle sector's market share is expected to grow and boast more than 1,000 models, while internal combustion engine vehicle sales are expected to decline at a rate of 2 percent or more annually.
This reduction in the key end-use segment for the oil sector is likely to lead to a supply glut.
“As the pandemic rebound loses steam, clean energy transitions advance, and the structure of China’s economy shifts, growth in global oil demand is slowing down and set to reach its peak by 2030. This year, we expect demand to rise by around 1 million barrels per day,” said IEA Executive Director Fatih Birol.
“This report’s projections, based on the latest data, show a major supply surplus emerging this decade, suggesting that oil companies may want to make sure their business strategies and plans are prepared for the changes taking place.”
FocusEconomics panelists are forecasting that Brent crude will sit at US$83.53 in Q4 2024, and around US$78 in Q4 2025. For WTI, they expects prices to hold at US$79.35 in Q4 2024 and hover in the US$74 range in Q4 2025.
“By Q4, prices should remain roughly stable compared to June levels,” the firm's report reads. “Over 2024 as a whole, prices should increase from 2023, as global supply is set to hit a slight deficit on robust non-OECD demand and continuing OPEC+ restrictions on output. The health of the Chinese economy, major central banks’ monetary policy, future OPEC+ decisions and the wars in Gaza and Ukraine are key factors to monitor.”
Natural gas prices see steady increase in Q2
On the natural gas side, prices steadily trended higher during the second quarter.
This positive price trend was influenced by several key factors. Most prevalent was the unseasonably mild winter, which, along with improving supply fundamentals, kept the market relatively stable.
By mid-May, prices had added US$1.10, holding in the US$2.90 range.
Despite the overall mild conditions, several severe cold snaps caused significant demand spikes across the northern hemisphere, which added tailwinds to the market.
Over the second quarter, natural gas consumption increased modestly, driven primarily by higher usage in the power and industrial sectors, though residential and commercial demand in the US and Europe fell due to the mild winter.
Geopolitical worries push natural gas prices up
By June 11, support from geopolitical concerns helped natural gas prices rise to a 2024 high of US$3.11, marking the first time since November 2023 that values had surpassed US$3.
“Concerns about supply disruptions rose in June as a European court ordered the Russian firm Gazprom to pay billions in damages to a German utility company. Gazprom is unlikely to pay up, potentially leading to the rerouting of the firm’s remaining European clients, a move which could lead Gazprom to halt gas flows to Europe,” said FocusEconomics.
By the end of the month, some of the positivity had waned and prices had retreated to the US$2.59 level.
For Q4 of this year, “prices are seen averaging higher than in June due to seasonal heating demand. However, for 2024 overall, prices should decrease from 2023 levels,” the FocusEconomics report notes.
“The EU should achieve at least 90 percent full inventories by winter, thanks to high existing stocks, muted industrial output, and stronger renewables demand. A key upside risk is potential supply disruptions.”
Panelists are forecasting that natural gas prices will average US$2.99 in Q4 2024 and US$3.56 in Q4 2025.
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
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