Week Ending July 25

Oil slumps as August 1 trade deadline looms

The WTI prompt-month contract fell $0.87 on Friday to settle at $65.16/Bbl on the week. The market continues to monitor the progression of US trade talks, geopolitical developments, and diesel-refining margins.

As the August 1 deadline approaches, countries have been engaging with the US to reach trade agreements. The US and Japan reached a deal that set the tariff rate at 15% for imported Japanese goods, a reduction from the previous rate of 30%. Negotiators from the US and EU are working towards a deal with President saying the odds of striking a deal are “50-50.” Mexico and Brazil are also seeking to deepen trade ties, reflecting broader efforts to avoid potential fallout from missed deadlines.

Underscoring shifting geopolitical dynamics, the U.S. government has authorized Chevron to resume oil operations in Venezuela. Before losing their license to operate, the supermajor was producing 240 MBbl/d in Venezuela with most of the production going to refineries in the Gulf Coast. It is unclear if fresh Venezuela barrels will arrive in time for peak US driving season which is over in about a month. Refineries typically carry out seasonal maintenance during the fall which leads to decreases in oil demand. As the peak season starts to wind down, key agencies warn of a global supply glut with the IEA expecting total global supply to increase by 2.15 MMBbl/d year on year.

Another key agency, the EIA, reported a 3.2 MMBbl crude draw for the week ended July 18. Diesel inventories rose, but they’re still at the lowest seasonal level since 1996. According to Goldman Sachs, diesel-refining margins are likely to stay above long-run averages. Outages at refineries in Europe, plus disruption (like Chevron’s revocation of their Venezuela license) to high diesel-yield crude grades has exacerbated the situation. Goldman analysts expect diesel-refining margins to stay around $10/Bbl higher in the second half of 2025 and in 2026, when compared with 2015-19 average.

As the trade deadline nears optimism wanes the US will reach agreements with key trade partners. Failure to do so could result in weaker global demand growth at a time when supply is forecasted to grow due to OPEC+ quota unwinds and robust non-OPEC production. AEGIS maintains a neutral view with limited upside.

August Henry Hub continues downward trend, with sharp weekly drop

The prompt natural gas contract fell 45c this week, to settle at $3.12/MMbtu. The rest of the curve settled lower as well, with the Winter ‘24/’25 strip finishing the week down 33c at $4.12/MMbtu, and Summer ’26 losing 20c to settle at $3.88/MMbtu. The August contract posted its lowest weekly close of 2025, as near-term prices remain under pressure from weak power sector gas demand. Meanwhile, Golden Pass LNG received its first pipeline gas shipments, ahead of the startup of Train 1.

While population-weighted Lower-48 average temperatures have been above the ten-year average for the past week, forecasts show temperatures falling below average for the first week of August. This should result in weaker gas demand and above-average injections into storage. Power burns have already been significantly lower this summer compared to last year. According to data from S&P, power sector gas demand has averaged 35.36 Bcf/d in Summer 2025, compared to 39.63 Bcf/d in Summer 2024. This is due to a combination of milder temperatures, higher prices encouraging more coal generation, and more renewables. This has led to expectations of higher storage levels to start winter with and pressured the Winter ‘25/’26 seasonal strip lower, with winter prices falling more than 40c over the past few weeks.

A more bullish factor for gas this week was the start of feedgas flowing into the Golden Pass LNG terminal. On Wednesday, 4 MMcf/d was shipped to the export plant on the Golden Pass pipeline, marking the first time gas has been recorded flowing to the plant. This is a supportive sign, as small volumes of feedgas often preclude plant startup.

AEGIS holds a neutral view on near-term prices and a bullish view on Winter ‘25/’26 and beyond. Swaps are recommended in the summer months, while costless collars may be preferred in the winter.