Natural Gas (Henry Hub)
Summer 2026 - Neutral
Fundamentals
- As of early-June current storage levels stand at 2.759 Tcf, 151 Bcf above the five-year average
- As we head out of shoulder season, Summer cooling demand should help prop up prices
- Golden pass has started to ramp capacity in its first train and will be the largest diver of demand growth this year
- Risk to demand: Golden Pass' start up has not been smooth
- Current estimates are for nearly 20 Bcf/d of LNG demand throughout Cal 26
- On supply growth: the Permian basin won't receive material egress capacity until November, restricting associated gas growth to the very end of 2026
- However, there has been an uptick in Haynesville production and drilling activity
Strategy
- Layer in protection on front of curve rallies
- Option skew continues to favor calls making costless collars attractive for producers
Winter 2026/27 onward - Neutral
Fundamentals
- We have recently re-evaluated our view and changed from bullish to neutral for Winter '26/'27 and Summer '27
- AEGIS projects storage to build on a similar path to the five-year average and entering Winter '26/'27 withdrawal season at 3.90 Tcf (similar to last year's level)
- LNG demand should increase to roughly 22 Bcf/d by the start of 2027 with the addition of Golden Pass train two
- However, Golden Pass' train one start up has been slower than anticipated
- Permian supply will grow with new pipes in late '26 and '27 with roughly 4 Bcf/d of pipeline capacity scheduled in-service during 4Q26
- The sharp rise in oil prices as increased the trajectory of associated gas in the Permian for the next 12-18 months
- Updated meteorological forecasts are increasing the chance of a super El Nino this summer
- Strong El Nino years typically result in a warmer than normal winter across the lower 48
Strategy
- Layer in protection on front of curve rallies
- We continue to favor upside friendly structures to take advantage of call skew
Crude (WTI)
Cal 26 - Neutral
Fundamentals
- We are nearing the end of the third straight month the Strait of Hormuz has been closed
- The US and Israel started a war with Iran on February 28, 2026
- The Strait of Hormuz, which 20% of the world's oil flows through, has been effectively shut down
- As of this writing (June 18), around 13 MMBbl/d of daily oil supply has been lost
- However, a memorandum of understanding (MOU) has been signed by both Iran and the US
- The MOU has set terms of agreement from each side as the two parties negotiate on the details
- Importantly, the MOU allows for flows in the Hormuz without restrictions
- As a result of the MOU, the oil market has fallen by about $15/Bbl in the prompt month as of June 18
- Analysts still forecast daily oversupply in late 2026 and into 2027
- In response to the large amounts of supply offline, the IEA countries have agreed to release 400 MMBbl
- Inventories have been drawn down in large quantities across the globe
- The pace of the Strait "reopening" will be under a lot of scrutiny as there remains a lot of unanswered questions on the pace of supply recovery
Strategy
- We still favor upside friendly structures like costless collars
- Swaps will provide greater price protection for those who find current put strikes of a collar unattractive
Cal 27 - Neutral
Fundamentals
- The state of Cal 27 for oil largely depends on the fallout of the current war and Strait reopening
- Most analysts have a large oversupply forecasted for 2027
- The IEA is around 5 MMBbl/d in 2027 where supply excedes demand
- Other private analysts are closer to 3 MMBbl/d
Strategy
- Systematically add hedges when economically viable
- Utilize swaps to protect as much cashflow as possible
- However, call skew down the forward curve remains elevated so collars may be attractive
