Natural Gas (Henry Hub)
Summer 2026 - Bullish
Fundamentals
- End of season storage (Winter '25/'26) is now projected to be 1.64 Tcf, well below the five-year average
- This is a major shift downward in just three weeks with end of season storage projected to be 1.81 Tcf (right atop the five-year average) as of January 15
- LNG demand growth really starts to ramp in the 2H 2025 and continues to grow rapidly into 2027
- Current estimates are for nearly 20 Bcf/d of LNG demand throughout Cal 26
- There becomes a "call on Haynesville" to bridge the gap between new LNG demand and supply
- A lack of Haynesville activity could create a gap between supply and demand which could bolster price
Strategy
- Layer in protection on front of curve rallies
- Higher than normal call skew and a strong swap price mean collars can provide both a nice floor as well as upside participation
Winter 2026/27 onward - Bullish
Fundamentals
- End of season storage (Winter '25/'26) is now projected to be 1.64 Tcf, well below the five-year average
- As of 2/9/26, AEGIS projects storage to remain below the five-year average throughout 2026 and enter Winter '26/'27 withdrawal season at 3.63 Tcf
- LNG demand should increase to roughly 22 Bcf/d by the start of 2027
- Permian supply will grow with new pipe in late '26 and '27, but lower oil prices have reduced the liklihood of material future gas growth
- Even after the recent oil volatility there remains concerns about furture crude production growth
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 - Bearish
Fundamentals
- Volatility has returned to oil markets as geopolitical risk reemerges - completely overshadowing the global oversupply narrative
- The oil markets have moved higher amid US/Iran tensions
- The upside risk that comes with a possible US military strike on Iran has pushed the oil market into call-skew
- Traders are placing an outsized premium on call options versus the puts
- The amount of buying in the call strikes has pushed the front 12 months of the curve into call-skew (this is rare)
- Call skew allows producers to hedge with collars without the normal "penalty" of put-skew that is typical for the oil market
- Expectations remain for supply to outpace demand in 2026 (But, where's the glut?...)
- In its latest monthly report EIA forecasts global oil balances will be oversupplied by 2.83 MMBbl/d in 2026
- 1Q 2026 is supposed to be extremely long on supply but data in OECD countries is showing the opposite
- There have been some unplanned outages and storm related reduction that are offsetting the large spreadsheet balances
- The question is how long will it be before oil bears capitulate if the oversupply comes in way under estimates
- Note: Consensus still remains a well supplied 2026. The point above is to say that 2026 may not be as bearish as analysts forecasted
Strategy
Cal 27 - Bearish
Fundamentals
- The state of Cal 27 for oil largely depends on how the oversupply narrative unfolds throughout 2026
- Bearish price forecasts due to oversupply has reduced non-OPEC+ supply projections
- It is possible that by 2027 and 2028 growth from non-OPEC+ countries could be minimal to negative
- Combine this with OPEC bringing back a large quantity of spare capacity, the oil market could find itself relatively tight in the physical market
- This means prices would need to rise against the current curve
Strategy
- Systematically add hedges when economically viable
- Utilize swaps to protect as much cashflow as possible or collars if able to tolerate a lower floor price
