Investment strategists and economists continue to focus on the risk of recession, although reduced with the 90-day suspended tariff war with China. Consumer sentiment about their financial well-being has declined, and expectations are for higher inflation in the future. This is despite the latest consumer and producer price indices being below investors’ expectations.
Could we be living in another period where an expected recession never arrives? It is possible. But in similar periods, the absence of a recession was never assumed. The reality comes with hindsight.
China’s economy, which was being crippled by Trump’s tariffs, has been given a reprieve and appears to be recovering. A trade truce and a renegotiated trading relationship with the US should bode well for Chinese oil demand. The International Energy Agency lifted its oil demand forecast, not because of an improvement in China but because low oil prices prompted increased use to generate electricity.
The world remains in a well-supplied oil market dominated by producers interested in selling more. Desired price thresholds vary among nations based on strategic and economic needs. Central banks are reducing interest rates in many countries to boost economies, which will help energy demand. If geopolitical events do not cause oil prices to soar or collapse, the international oil industry will continue reinvesting and drilling. Price shocks, or threats of shocks, are not good for industry stability and planning. Slowdowns in oilfield activity will only enhance the outlook for substantially higher future oil prices as supply trails demand growth.
The oil industry faces many challenges. Most are beyond management’s control. Remaining cautious in spending decisions is the appropriate response. Pay less attention to the rhetoric surrounding the oil price. Instead, focus on activity levels—they will give you a better idea of the future oil price.
NATURAL GAS
Early hot, late cold, and severe weather bouts dominate the news of the natural gas market. Producers are watching demand, especially as the industry enters its storage injection season. Our gas storage chart shows how the early hot weather this spring caused storage volumes to drop significantly below the industry’s 5-year average. As the weather’s impact on gas use moderated, the sustained high gas production enabled storage to revert to the 5-year average.
The gas market is in its seasonal shoulder months when hot weather heavily impacts demand. If summer fails to arrive on schedule, gas storage will rise. However, if the summer is hotter or more extensive, we could see storage volumes fall below or merely track the 5-year average volumes. As goes storage, so go gas prices.
More liquefied natural gas (LNG) shipments are expected as we move into the second half 2025. The market is focused on the decisions of LNG exporters for their new or expanded facilities. Expectations are that seven new projects could reach final investment decisions this year, adding 90 million tons of annual LNG export capacity. Five of the seven projects are expansions of existing terminals, while two are greenfield sites.
Developers of these projects are concerned about the impact of President Trump’s 25 percent tariffs on steel and aluminum, which are used extensively and raise the cost of projects. So far, developers have not indicated that the tariffs will alter their decision timetables.
The US is already the world’s largest exporter of super-chilled natural gas. Its 91.3 million annual tons of export capacity will more than double over the next few years as 95.7 million tons of new capacity currently under construction come online. The seven projects with expected FIDs this year will add another 50 percent to the US’s total export capacity by 2030.
Although LNG is receiving the bulk of attention, pressure is being put on building new pipelines into and through New York to supply New England. The steps the administration is taking to speed up permit approvals and to remove barriers to new pipeline projects coincide with the disruption of the offshore wind market. New England governors have been the prime cheerleaders for East Coast offshore wind projects. The loss of that supply increases the pressure for new gas pipelines, which can deliver less-costly gas from Appalachia. While not a net-zero fuel, more gas supply is a better alternative than restarting coal- and oil-fired power plants. Although new nuclear plants are being discussed, their timing would be beyond the delivery dates of gas pipelines.
Gas prices have bounced up after falling back to $3 per thousand cubic feet. What is essential is that gas futures show prices next year averaging more than $1 per Mcf higher than current prices. The market sees gas demand growth, especially from increased LNG exports, as more potent than any near-term supply surplus. The market is signaling that producers should consider increased gas drilling and production. However, much of the rise in gas output is associated with rising oil production, and with weak oil prices, drilling is slowing. Next year, the gas market could face a supply squeeze that would send prices even higher than the futures prices suggest.
TARIFF RELIEF, BUT MARKET WORRIED ABOUT RECESSION AND OIL DEMAND
INJECTION SEASON START KEEPS GAS PRICES ABOVE $3/MCF LEVEL
This feature appeared in ON&T Magazine’s 2025 June Edition, Deep-Sea Exploration, to read more access the magazine here.
