Natural Gas (Henry Hub)
Summer 2026 - Bullish
Fundamentals
- The market enters Summer 2026 with 1.82 Tcf in storage, right at the five-year average
- Both March and April weather has come in very mild and is the number one factor to blame for prices continuing to move lower
- Golden pass has started to ramp capacity in its first train and will be the largest diver of demand growth this year
- Current estimates are for nearly 20 Bcf/d of LNG demand throughout Cal 26
- On supply growth: the Permian basin won't receive material egress capacity until November, restricting associated gas growth to the very end of 2026
- However, there has been an uptick in Haynesville production and drilling activity
Strategy
- Layer in protection on front of curve rallies
- Option skew continues to favor calls making costless collars attractive for producers
Winter 2026/27 onward - Bullish
Fundamentals
- As of 4/9/26, AEGIS projects storage to build on a similar path to the five-year average and entering Winter '26/'27 withdrawal season at 3.90 Tcf (similar to last year's level)
- LNG demand should increase to roughly 22 Bcf/d by the start of 2027 with the addition of Golden Pass train two
- Permian supply will grow with new pipes in late '26 and '27 with roughly 4 Bcf/d of pipeline capacity scheduled in-service during 4Q26
- The sharp rise in oil prices as increased the trajectory of associated gas in the Permian for the next 12-18 months
Strategy
- Layer in protection on front of curve rallies
- We continue to favor upside friendly structures to allow for upside participation
Crude (WTI)
Cal 26 - Neutral
Fundamentals
- The ultimate right-tail risk event has happened in the global oil market
- The US and Israel started a war with Iran on February 28, 2026
- The Strait of Hormuz, which 20% of the world's oil flows through, has been effectively shut down
- As of this writing (April 7), around 10 MMBbl/d of daily supply has been lost
- Big dislocation between physical and financial barrels
- Dated Brent hit a new record high on April 7 of $144.42/Bbl
- The million dollar question is how long will the Strait be mostly unpassable? No one knows and duration matters the most
- The situation is still fluid and changes by the hour, but analysts still forecast daily oversupply in late 2026 and into 2027
- In response to the large amounts of supply offline, the IEA countries have agreed to release 400 MMBbl, but the sheer number of barrels offline is hard to offset and oil prices so far remain above $100/Bbl
- Even if the conflict were to end soon and the Strait was traversable, we think there will be a new normal in the oil market and a higher average forward curve than pre-war
- Our Neutral view has more to do with the insane amount of volatility observed every day and record, or near record, price swings
- Prices all hinge on duration of Strait closure. If it continues to be "closed" oil prices will continue to rally
- If ships are allowed to pass unencumbered, prices will fall but will likely remain elevated from pre-war levels
- Damage has been done. If the conflict were to wrap up by the end of April, there would still be about 950 MMBbl lost over the course of 2026
Strategy
- Take advantage of increased volatility and call skew by favoring collar or other upside friendly structures
- Swaps will provide greater price protection but should be 'fit-to-the-curve' in order to fight some of the backwardation in the forward curve
Cal 27 - Neutral
Fundamentals
- The state of Cal 27 for oil largely depends on the fallout of the current war
- Bearish price forecasts for '27 have been revised higher, but many estimates are below the current curve as of April 7
- Again, balances in '27 depend heavily on duration of outage for the Strait and the damage that accumulates
- When the dust settles, it is likely that forward balances will still be oversupplied
Strategy
- Systematically add hedges when economically viable
- Utilize swaps to protect as much cashflow as possible
- However, call skew down the forward curve remains elevated so collars may be attractive
