Week Ending May 2

Oil slumps on OPEC+ supply hikes and soft economic data

The WTI prompt-month contract settled at $58.29/Bbl on Friday, capping a volatile week with a notable decline of nearly $5. Crude markets came under pressure as weak economic data and signs of rising OPEC+ supply weighed on sentiment.

Economic indicators released throughout the week painted a broadly pessimistic picture. Nationally, the Conference Board’s consumer confidence index dropped 7.9 points in April, also the weakest since May 2020. Meanwhile, first-quarter GDP contracted 0.3% quarter-over-quarter, slightly worse than the expected 0.2% decline, marking the worst quarterly performance since 2022. Overseas, China’s manufacturing sector also showed signs of strain, with the official April PMI falling below 50 and signaling contraction. Still, there was a modest upside surprise by week’s end, as nonfarm payrolls rose by 177,000 in April, beating market forecasts and offering a brief reprieve from the broader malaise.

As macro data underscored demand-side vulnerabilities, US producers began to respond on the supply side. A Nabors Industries survey revealed that shale operators plan to cut drilling activity by around 4% by year-end. Matador Resources has already announced plans to drop one of its nine rigs by mid-2025. Meanwhile, Rystad Energy slashed its US onshore crude growth forecast by over 50%, citing softening activity and a more cautious outlook from operators.

Meanwhile, OPEC+ has moved its meeting up to Saturday to discuss June output policy amid expectations of a further supply increase. The group, which had already raised output by 411 MBbl/d in May, is now considering another hike. This move comes as Saudi Arabia signals a willingness to tolerate lower oil prices and expresses frustration over members like Iraq and Kazakhstan exceeding their production targets.

This week encapsulated the pressures facing the oil market: supply risk against a backdrop of deteriorating demand optimism. While Friday’s jobs report helped stabilize sentiment, the market’s broader tone remains bearish, shaped by the upcoming OPEC+ output decision and deepening macro fragility. Markets will be watching closely for any shifts in production strategy or escalation in US-China tensions. AEGIS holds a neutral view on prices, with downside risks continuing to outweigh bullish catalysts.

Natural gas posts sizeable gain after four weeks of losses

The June Henry Hub contract posted a 51c gain this week, settling at $3.625/MMbtu. This marks a sharp reversal from the downward trend seen over the past four weeks, in which gas prices fell more than $1. The rally extended to next winter as well, with the Winter ‘25/’26 strip advancing 46c to $4.70/MMbtu. Summer ’26 was slightly higher at $4.16/MMbtu.

Prices increased despite a loosening of US inventories, with the EIA reporting a large storage build, sending inventory levels back above the five-year average for the first time since January. The 107 Bcf injection was in line with expectations, and we should see continued 100+ Bcf builds for the next few weeks. This large build was driven by weak weather-driven demand, which is expected to mostly continue over the next two weeks.

Through the month of May and into summer, temperatures will begin to trend higher, supporting power demand but limiting inflows into export plants. Power generation is the primary driver of gas demand in the summer months, especially in the Southeast, as electricity demand for air conditioning increases. While summer will see total demand rise from the seasonal lows of the shoulder season, LNG feedgas demand will drop off substantially. As ambient temperatures along the US Gulf Coast rise, export plants become less efficient, and inflows can drop by as much as 20%. Not all facilities are impacted the same way, but the result should be LNG feedgas demand averaging about 15 Bcf/d, which will still be higher year-over-year but below the maximum observed capacity of 17.73 Bcf/d.

AEGIS recommends hedging with swaps for near-term contracts, costless collars for Winter ‘25/’26, and either swaps or tight collars for Summer ’26.