Crude Extends Decline as Diplomacy Offsets Renewed Strikes; Gas Ticks Higher as Production Falls

Crude extends decline as diplomacy offsets renewed strikes

• The WTI prompt-month contract fell $1.60 to $94.86/Bbl Tuesday morning (7:30 AM CT)
• Iran said Monday that it could reopen the Strait of Hormuz and resume nuclear negotiations within two days if Washington accepts its conditions
• • Those conditions include lifting the US blockade of Iranian ports, easing sanctions on Iranian oil and agreeing to a ceasefire that also covers Lebanon
  • Vessels would also be required to follow a shipping route agreed upon by Iran and Oman
  • Mediators are reportedly developing a framework under which Iran would halt attacks around Hormuz in exchange for the US lifting its blockade of Iranian ports, with further talks expected this week
• While no agreement has been reached, Vice President JD Vance said that he and President Trump remain optimistic about the prospects for a negotiated settlement
• Military operations have continued alongside the diplomatic efforts, with US forces conducting limited strikes on Iranian targets on Qeshm Island after Iranian forces reportedly fired at American aircraft
• The prospect of negotiations has removed part of crude’s geopolitical risk premium, but the gap between diplomatic proposals and a durable agreement remains wide
• With military operations continuing, we maintain that short-term price risks remain skewed to the upside, particularly given the possibility of renewed escalation following the US midterm elections

Gas ticks higher as production falls to seasonal lows

• • Natural gas is up 5.3c to $2.909/MMBtu (As of 07:30 AM CDT)
  • Lower-48 gas production fell 2.4 Bcf/d from yesterday’s final noms to 107.7 Bcf/d, a recent low
  • • Since last week, Appalachian production has dropped 2.6 Bcf/d and South Central has dropped 2.2 Bcf/d in production
    • The production cuts are working to partially offset weaker shoulder season demand, as temperatures continue to run 4-5°F over average throughout the forecast
  • Rescom demand is hovering in the 15-17 Bcf/d range this week, with power demand around 33 Bcf/d (Criterion)
  • • Last year, November rescom demand averaged 26.9 Bcf/d, highlighting how weak heating demand is this year to start Winter
• Exxon reaffirms December as Golden Pass Train 2 construction target
• • In its earnings call on Friday, ExxonMobil highlighted they expect mechanical completion of Golden Pass Train 2 by next Month
  • They also said they expect Train 3 to be mechanically complete by mid-2027
  • This comes as Train 1 continues its choppy ramp up to full capacity