Week Ending December 12

WTI pressured by persistent oversupply despite rising Venezuela tensions

WTI crude traded near multi-month lows this week as the market continued to prioritize the widening structural surplus expected in 2026 over any short-lived geopolitical risks. Even as tensions escalate in Venezuela, the forward outlook remains dominated by concerns about persistent supply growth and softening global balances.

The latest Short-Term Energy Outlook from the EIA reinforces a bearish outlook. The agency now expects WTI to average $50.93/Bbl in early 2026 as inventories continue to rise and global liquids production consistently outpaces demand. The EIA projects stock builds above 2 MMBbl/d next year, driven primarily by non-OPEC producers such as the United States, Brazil, Guyana, and Canada, along with additional barrels from OPEC+ as previously paused production returns to the market. Demand growth remains positive but moderate and is concentrated mainly in non-OECD Asia.

The IEA reaches a similar conclusion and estimates that global supply will exceed demand by roughly 3.8 MMBbl/d. This represents a downward revision of about 230 MBbl/d from last month, driven largely by a pause in OPEC+ production quota increases. Even with that adjustment, demand growth remains modest and concentrated in non-OECD Asia. Taken together, both agencies present a unified message that the crude market is heading into a structural surplus, with fundamentals rather than geopolitics driving the price outlook for 2026.

Against this backdrop, tensions in South America are rising. The United States seized a sanctioned supertanker off the coast of Venezuela and expanded sanctions on individuals and vessels linked to the Maduro government. These actions are meant to disrupt revenue channels and tighten enforcement around Venezuelan crude exports. They add friction to outbound flows and increase operational risk for shippers, but the market does not expect a broad or lasting disruption to overall supply. As a result, these developments have not provided meaningful support for crude prices.

The Federal Reserve influenced the broader market backdrop after lowering its benchmark lending rate by 25 basis points to a range 3.5-3.75%. The move was widely expected and may slightly ease financial conditions while putting some downward pressure on the dollar, which is typically supportive for crude. Even so, the oil market remains driven by fundamentals. The expected supply glut heading into 2026 carries far more weight than a single quarter-point rate cut, and any potential macro boost from the Fed is only modest.

AEGIS maintains a bearish outlook. Rising inventories, steady non-OPEC supply growth, and only moderate demand expectations continue to outweigh geopolitical developments and the modest macro support provided by the Federal Reserve. With fundamentals firmly in control, crude remains anchored to a structurally looser balance heading into 2026.

January Henry Hub posts largest weekly decline

The prompt month Henry Hub contract fell more than $1 this week to settle at $4.11/MMbtu and is down nearly $1.50 from last weeks intraday high of about $5.50/MMbtu. The rest of the curve has also sold off, with the Summer ’26 seasonal strip lower by 50c to settle at $3.74/MMbtu and Winter ‘26/’27 down 38c at $4.34/MMbtu. Evolving weather forecasts were the driver of this week’s intense volatility, with models showing a much different outlook compared to last week. While a significantly more bearish near-term demand outlook was the focus of market participants this week, a bullish EIA storage report shows the surplus to the five-year average in inventories at a new multi-month low.

Last week, the January contract settled at the highest level since early this year as meteorologists forecasted this December to be the third coldest of the past 25 years. By the time the market opened again on Sunday evening, models had already warmed by a decent amount, sending prices sharply lower Sunday night and Monday morning. Weather models continued to give up HDDs over the course of the week resulting in continuous selling pressure in the Henry hub curve, it is now forecast that the first half of the month will come in as one of the coldest of the past 25 years, while the second half could be one of the warmest. This represents a significant change in the near-term demand outlook compared to last Friday and drove the substantial decline in gas prices this week.

Outside of the near-term demand outlook, natural gas inventories tightened to the five-year average. The EIA reported a -177 Bcf withdrawal for last week, putting inventories only 103 Bcf above the five-year average and at a -28 Bcf deficit to last year. Next week’s storage report should also be relatively bullish as cold temperatures drove heating demand higher. If current weather forecasts pan out, then a string of bearish storage prints could be recorded after that. However, we still anticipate inventories returning to the five-year average in early 2026 and falling below average by the end of winter.