Week Ending January 23

Near-term risks support crude despite structural oversupply

Crude markets found support this week as near-term supply disruptions and renewed geopolitical risk lifted prices, even as the underlying global balance remained structurally oversupplied. On Friday, WTI prices settled at $61.07/Bbl, $1.63 higher than last week’s closing, reflecting a modest risk premium tied to temporary constraints on physical supply and heightened geopolitical tensions.

On the supply side, disruptions in Kazakhstan tightened prompt availability and reinforced the market’s sensitivity to marginal changes in physical flows. Export constraints and upstream outages reduced near-term supply, contributing to firmer front-end pricing. At the same time, geopolitical risk resurfaced following comments from Donald Trump regarding U.S. naval movements toward Iran, prompting markets to reassess the probability of escalation in the Middle East. While such episodes can move prices quickly, they tend to fade in the absence of sustained supply losses.

Despite these near-term tailwinds, the broader structural picture remains unchanged. Global production continues to outpace demand growth, and inventories are projected to rebuild through 2026 and 2027. The EIA implies global stock builds averaging roughly 2.8 MMBbl/d in 2026 and around 2.0 MMBbl/d in 2027, underscoring the persistence of surplus barrels in the system. Non-OPEC supply expansion, incremental OPEC+ volumes, and relatively modest demand growth continue to anchor the forward curve in a surplus environment.

This week’s price action highlights a familiar pattern in crude markets. Temporary supply disruptions and geopolitical risk can provide tactical support to prices, but they rarely redefine the underlying balance. As near-term risks fade and attention returns to fundamentals, crude prices remain constrained by persistent oversupply.

AEGIS maintains a bearish view on crude. With inventories projected to rise through at least 2027 as production growth continues to outpace demand, upside appears limited and rallies remain vulnerable in the absence of durable shifts in global supply and demand.

Natural gas posts largest weekly gain in history ahead of winter storm

The February henry Hub contract gained $2.28 to settle at $5.40/MMbtu, making this is a historically large move (yeah, you read that right, gas was up $2.28 on the week). Intraday, prices reached as high as $5.65/MMbtu but have backed off a bit heading into Friday’s close. The rest of the forward curve has moved higher as well, with Summer ’26 up 64c to $3.78/MMbtu and Winter ‘26/’27 up 43c to $4.36/MMbtu. This week’s move was of course driven by the incoming winter weather event which will impact much of the Lower-48.

About one third of the country is currently under a winter weather watch stretching through early next week. Temperatures will drop well below normal while snow and ice will accumulate as far south as Texas and Louisiana. While cold weather alone is often enough to drive gas prices higher, due to increased consumption for space heating, this event will endanger gas supply as well. The combination of surging demand and lower supply will result in a massive withdrawal from inventories. With temperatures in producing regions such as the Permian Basin, Haynesville, Midcont, and Northeast falling well into freeze-off territory, gas production will suffer this weekend. Current estimates are for up to 10 Bcf/d of production freeze-offs through this weekend and early next week. As of this morning, freeze-off impacts are already beginning.

Dry gas production has fallen to 105.15 Bcf/d, according to data from S&P. This compares to this month’s average of 108.48 Bcf/d. However, today’s drop has not impacted total supply yet as Canadian imports have surged to 9.28 Bcf/d, offsetting the lost supply. Canadian imports are limited by pipeline capacity though, and will likely top out around 10-11 Bcf/d. 

It will be difficult to pin down exactly how much gas should be pulled from storage given several factors. Higher gas prices and concerns of deliverability may result in demand destruction as some industrial facilities shut down for the duration of the event. With snow and ice accumulating in much of the country, power outages are a large possibility, the extent and duration of which will be an unknown. In advance of the storm utilities will begin packing pipelines with more gas to reduce demand shock risk and support deliverability. All of these factors can make it more difficult to estimate what the EIA will report on Thursday February 5, but regardless, the reported withdrawal will be quite large.

Beyond the upcoming week, longer range weather models which forecast the 16-30 day period appear to be setting up for continued cold weather into February. This could potentially continue to provide support for prices, but the accuracy of longer-term forecasts is not particularly high. On the other hand, if weather models shift warmer over the weekend or freeze-offs are not as high as anticipated, prices could open much lower once trading resumes.