Week Ending January 16

Short-term geopolitical risk lifts crude, structural pressures remain

Crude markets experienced a volatile week as geopolitical risk premiums resurfaced, driven primarily by escalating tensions surrounding Iran. Despite pulling back from earlier three-month highs, WTI settled higher on Friday, closing up $0.25 at $59.44/Bbl, above last week’s $59.12/Bbl close. Prices oscillated sharply throughout the week as traders reacted to rapidly changing headlines tied to potential US responses, rather than any material change in the global supply-demand balance.

Early in the week, oil prices climbed as markets priced in heightened geopolitical risk following President Trump’s comments signaling a tougher stance on Iran. WTI futures briefly rose above $61/Bbl, its highest level since October, as traders focused on potential disruptions to Iran’s ~3.3 MMBbl/d of crude output. Options markets echoed this sentiment, with call skew and implied volatility rising to their most bullish levels since mid-2025.

However, that risk premium proved fragile. Later in the week, prices reversed sharply after President Trump signaled a softer stance on Tehran, easing immediate supply disruption fears and triggering the largest single-day decline since October.

Structural supply dynamics remained largely unchanged. The latest EIA STEO reinforces that these geopolitical episodes are occurring against a backdrop of persistent oversupply. The STEO forecasts global oil inventories will continue to build through 2026, with implied stock builds averaging roughly 2.8 MMBbl/d, as global production growth outpaces demand.

On the supply side, global liquids production is expected to increase by 1.4 MMBbl/d in 2026, driven primarily by OPEC+ and non-OPEC growth in South America, even as US production begins to plateau and gradually decline under sustained price pressure. Importantly, the STEO assumes Venezuelan sanctions remain in place. Any relaxation would introduce additional downside risk to prices rather than alleviate it.

This week’s price action highlights a familiar pattern where geopolitical risk injects short-lived volatility into crude markets but ultimately fails to alter the broader structural outlook. While tensions between the US and Iran temporarily supported prices, the underlying fundamentals remain dominated by rising global inventories and excess supply projected well into 2026. The market continues to grapple with surplus barrels, leaving crude prices vulnerable once geopolitical risk premiums fade. AEGIS maintains a bearish view as attention refocuses on the growing imbalance between supply and demand.

Natural gas falls for a second week despite improved demand outlook

The February Henry Hub contract lost 5c this week to settle at $3.12/MMbtu, bringing losses over the last two weeks to -50c. Losses were limited to the front of the curve, as the Summer ’26 seasonal strip gained 2c and next winter gained 1c. The losses in the February contract came despite a modest improvement in near-term demand forecasts, as temperatures across the Lower-48 are set to drop. Meanwhile, outages plagued US LNG terminals.

Temperatures are set to fall below average for the next two weeks, supporting gas demand for space heating. This is a relatively significant change compared to the last few weeks, in which temperatures were elevated to the ten-year average. Population-weighted average temperatures are currently forecast to fall to about 30 ºF early next week, which is nearly 10 ºF colder than average. Forecasts show temperatures remain below average for nearly the entirety of the next two weeks. This should result in at least two inventory withdrawals that are larger than average and help shrink the storage surplus to the five-year average.

LNG feedgas levels briefly dropped to the lowest level since October this week as outages impacted multiple LNG export plants. Flows into Corpus Christi LNG fell from 3.5 Bcf/d to 1.5 Bcf/d amid a planned pipeline outage but recovered on Friday. At the same time, flows into Freeport LNG dropped to 590 MMcf/d from 2.2 Bcf/d. The Freeport outage was blamed on a power interruption at an upstream pretreatment facility, resulting in a disruption to feed gas supply and unplanned flaring. As of Friday, US LNG feedgas has recovered to more than 20 Bcf/d.