Week Ending May 16

Crude climbs on trade relief, but oversupply risks persist

WTI futures advanced this week, with the prompt-month contract settling at $62.49/Bbl on Friday, supported by easing trade tensions. While price strength was front-loaded and sentiment-driven, the underlying structure of the market remains cautious. The WTI curve holds in backwardation through year-end 2025, before shifting into contango by early 2026, reflecting persistent concerns about oversupply despite near-term tightness.

Early in the week, China announced it would lower tariffs on US goods to 10% (from 125%), while the US agreed to cut its rate to 30% (from 145%). The move, framed as a temporary de-escalation, boosted macro sentiment across commodities. While the tariff relief helped stabilize near-term demand expectations, its lasting impact may be limited given broader macroeconomic softness.

The IEA downgraded its 2025 demand growth forecast to 650 MBbl/d, citing weak consumption trends in China and India alongside broader macroeconomic headwinds. At the same time, OPEC+ restored 411 MBbl/d of production in May, with a similar increase coming in June. Although the IEA also trimmed its 2026 US shale growth outlook by 190 MBbl/d, global supply is still expected to outpace demand, with inventories projected to build by as much as 2 MMBbl/d in Q1 2026.

Supply-side risks were further underscored later in the week, as President Trump signaled progress on a potential US–Iran nuclear deal that could bring 300–400 MBbl/d of Iranian crude back to market if sanctions relief is included.

This week’s price gains were driven more by policy sentiment than by structural shifts in market fundamentals. The forward curve continues to flatten, with early 2026 contango signaling rising inventory risk. With OPEC+ accelerating supply, Iranian volumes potentially returning, and demand growth slowing, AEGIS maintains a neutral view with a downside bias.

June Henry Hub Falls as Storage Surplus Expands

The prompt month Henry Hub contract settled 44c lower at $3.36/MMbtu, in a reversal of the rally seen over the course of the last two weeks. The Winter ‘25/’26 seasonal strip fell 18c to $4.59/MMbtu, while Summer ’26 and Winter ‘26/’27 gained 6c each. Prices were pressured lower as weather forecasts shifted cooler and the EIA reported a further expansion of the storage surplus.

Last week, weather forecasts showed temperatures well above normal in advance of this week’s early-season heat wave. However, forecasts are now showing a flip to a cooler pattern over the next two-weeks. At this time of year there is both demand for space heating and air conditioning, depending on the region of the US. The ultimate result from these forecast changes is a slight loss of expected gas demand over the next two weeks, as Lower-48 temperatures are forecast to average 65ºF-70ºF.

The EIA reported another triple digit storage injection, leading to a further expansion of the storage surplus. Inventories are now +57 Bcf above the five-year average. This represents a sharp reversal from the -238 Bcf deficit in February. The next few weeks could see more large storage builds and a further expansion of the storage surplus.

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