Week Ending June 20

Crude Steadies as Diplomacy Window Opens

Crude prices posted a modest gain this week, with the WTI prompt-month contract rising $1.95 to settle at $74.93/Bbl on Friday. The geopolitical risk premium introduced last week by the Iran-Israel conflict continued to support prices.

Tensions escalated early in the week as Iranian missile strikes targeted parts of Israel, including the Haifa refinery, which sustained minor damage but remained operational. Despite the heightened hostilities, physical oil flows have remained uninterrupted.

The market's primary concern is that the conflict could broaden into a regional war. A wider escalation risks disrupting supply. Iran could attempt to close the Strait of Hormuz, a chokepoint for roughly 20% of global oil flows. A spillover into neighboring countries could also threaten output in Saudi Arabia, similar to the September 2019 Houthi attacks on the Ghawar oilfield, which temporarily disrupted 5% of global supply.

Prices eased on Friday after President Trump indicated he would decide within two weeks whether to strike Iran, suggesting a window for diplomacy remains open. While Iran expressed willingness to discuss limits on nuclear enrichment, it rejected any proposal to end enrichment entirely, falling short of U.S. demands.

In the absence of a major disruption, global oil markets appear well supplied. In their latest report, the IEA projects a surplus of 0.82 MMBbl/d in 2025 and 1.1 MMBbl/d in 2026. Last week, the EIA issued a similar outlook, forecasting a persistent oversupply through 2026, despite U.S. shale production projected to decline next year.

The WTI forward curve remains backwardated through 2026, though recent volatility suggests the market is pricing in increased short-term supply risk. While geopolitical tensions continue to support the front end of the curve, underlying fundamentals remain soft, with limited upside potential over the medium term. AEGIS maintains a neutral view.

Natural Gas Prices Climb on Heat Risk, Bullish Winter Strip Action

Despite a modest pullback Friday, Henry Hub price action has remained bullish. The July contract settled at $3.989/MMBtu on Wednesday, June 18, the highest close since May 9, after a four-day rally that added 49.7¢. Markets were closed Thursday for the holiday, and Friday saw a partial retracement, with Nymex settling down 14.2¢ at $3.847/MMBtu.

Support came from forecasts calling for an extreme heat event across the Midwest and Eastern U.S., raising expectations for stronger near-term demand and easing the pace of storage injections. The EIA reported a 95 Bcf build for the week, ending a seven-week streak of triple-digit additions. Inventories now stand 162 Bcf above the five-year average, a sharp turnaround from the deficit seen in early March, driven by strong supply, weaker LNG feedgas volumes, and muted early-summer weather.

Globally, structural changes to gas flows may be on the horizon. The European Commission unveiled a legal proposal to phase out Russian oil and gas imports by the end of 2027, potentially displacing about 1.8 Tcf or 5 Bcf/d of Russian gas. The policy still requires ratification by the EU Council and Parliament and includes demand-side reductions as part of the transition.

AEGIS notes that while the front of the curve and the balance of the Summer 2025 strip have been volatile, the following three seasonal strips for gas have continued to march higher. Strip values for Winter 25/26, Summer 26, and Winter 26/27, are all at or near their highest levels since late 2022. AEGIS recommends utilizing costless collars, especially in the winter months. We remain bullish this coming winter through 2027.