1. As one of final acts, President Obama imposes sanctions on Russia and expels diplomats.
The Obama administration responded harshly to alleged Russian interference in the presidential election, expelling 35 diplomats, imposing new sanctions on Russian officials and ordering the closure of two Russian compounds in the U.S. “All Americans should be alarmed by Russia’s actions,” President Obama stated. “These data theft and disclosure activities could only have been directed by the highest levels of the Russian government.” These new sanctions put President-elect Donald Trump in a difficult position of either having to go along with the Obama administration or choose a different path when he takes office. In regard to the impact on oil and gas, it is unclear what comes next, but Obama’s decision could make it more difficult to lift sanctions on Russia moving forward.
2. OPEC deal begins this week.
The countries involved in the recent supply cutting OPEC deal are scheduled to begin production cuts this week at the start of the New Year, but members are allowed to average their reductions over a six-month period, so immediate cuts are not a given. It will take a few weeks to figure out who is cutting and by how much – data for January will be released in February.
3. Natural gas inventories continue to fall.
The EIA reported another drawdown in natural gas stocks, with inventories falling 237 billion cubic feet as of the end of December. That puts total stocks at 413 Bcf lower than last year’s levels at this time and also 79 Bcf below the five-year average. More simply stated, this means the gas market is no longer in a glut, which helps explain why prices are up above $3.81/MMBtu, the highest price in more than two years. Production has fallen this year while demand has climbed. If this trend continues, prices will rise even further, potentially surpassing $4/MMBtu for the first time since 2014. This is great news for a few different players in the market. First, this is good news for natural gas drillers, who are already adding rigs back to the shale patch. And second, it’s good for coal-fired power plants, which are being asked to generate electricity more than they have in quite some time. Oil prices often hold the spotlight of media, but the ongoing rise in natural gas is a big story that’s just as important.