Week Ending October 10

Oil drops to multi-month low on softening outlook and fading risk premium.

Oil markets fell sharply this week as geopolitical tensions eased, and fresh data pointed to a growing supply overhang through 2026. Losses deepened on Friday after President Trump threatened new tariffs on China. The tone across both OPEC+ and the EIA reinforced a cautious outlook, with the group signaling restraint.

Over the weekend, OPEC+ opted for a smaller-than-expected 137 MBbl/d quota increase, extending the gradual unwind of its 1.66 MMBbl/d voluntary cuts. The move reflects strategic differences between Saudi Arabia, which seeks to regain market share, and Russia, which prefers a slower pace to support prices amid sanctions and repeated Ukrainian drone attacks.

Meanwhile, the EIA’s October Short-Term Energy Outlook projected global inventories rising 2.1 MMBbl/d on average in 2026, with the steepest builds early next year. The agency warned that sustained increases could pressure prompt values and tilt the market toward contango. It also cut its WTI forecast to $58/Bbl in 4Q25 and $48/Bbl in 2026, citing higher storage costs and persistent oversupply.

While China’s stockpiling has temporarily absorbed surplus barrels, adding roughly 900 MBbl/d to inventories this year, any slowdown in its buying could quickly expose the imbalance. Additional supply growth from the US, Brazil, and Guyana adds to the pressure, with US output reaching a record 13.6 MMBbl/d in July.

In the Middle East, Israel and Hamas reached a truce that includes the release of remaining hostages, marking a potential turning point in a two-year conflict that has unsettled markets. Analysts at Rystad Energy said a durable peace could ease the geopolitical premium on prices, though risks persist with the war in Ukraine ongoing.

Altogether, the week’s developments highlight a market entering a period of persistent oversupply. With production climbing and geopolitical risks fading, prices are likely to stay under pressure as the market adjusts to persistent oversupply. AEGIS maintains a bearish outlook, favoring downside protection through swaps.

Natural gas reverses last week’s gains despite tighter supply

The November Henry Hub contract settled 22c lower at $3.11/MMbtu, the lowest level in several weeks. Winter ‘25/’26 also gave up gains, falling 23c this week to $3.70/MMbtu. Summer ’26 lost 11c to finish the week at $3.79/MMbtu. The weakness exhibited across the gas curve came despite a significant reduction in supply and a reduction in the storage surplus.

Lower-48 gas production has averaged about 107.5 Bcf/d over the past several weeks, but fell sharply this week by more than 2 Bcf/d, according to data from S&P.  On Tuesday, output first dropped to 104.5 Bcf/d and remained low throughout the week, improving slightly on Friday to 105 Bcf/d. This is the lowest level that production has fallen to since May and should result in a smaller storage build in next week’s EIA report. The cause of this drop in supply is primarily driven by pipeline maintenance, with significant volumes offline in the Northeast and Permian.

Meanwhile, the surplus to the five-year average in gas storage shrank for a third week. The EIA reported an 80 Bcf injection for last week, placing inventories 157 Bcf above the five-year average. Three weeks ago, the storage surplus was +204 Bcf to the five-year average. There remains about one month until the start of the withdrawal season, with it currently looking like inventories will start winter near the top of the five-year range. Despite this, our modeling shows the supply-demand balance tightening this winter, resulting in a storage deficit by March.