Week Ending August 8

Oil slides on OPEC+ supply surge, fading geopolitical risk, and demand concerns

WTI prompt-month contract ended the week down $3.45 at $63.88/Bbl, unchanged in Friday’s session. Crude has slipped in August after three consecutive monthly gains, pressured by the prospect of a supply glut later this year as OPEC+ continues to unwind production cuts. Signs of slower U.S. economic growth are adding to the weakness, with President Trump’s expanded trade tariffs weighing on activity and posing a risk to energy demand.

Labor market data reinforced the slowdown narrative, with continuing jobless claims rising to their highest level since November 2021. Over the weekend, OPEC+ announced a September quota hike of 547 MBbl/d, completing its full ~2.5 MMBbl/d unwind a year ahead of schedule. The group scheduled an unexpected September 7 meeting, signaling that remaining voluntary cuts of ~1.6 MMBbl/d could be returned, paused, or even reversed. Still, Goldman Sachs expects quotas to hold steady after September.

Trade tensions escalated as Trump doubled tariffs on all Indian imports to 50% in response to the country’s purchases of Russian crude, prompting Indian state refiners to scale back spot Urals buys. Treasury Secretary Scott Bessent indicated China could also face energy-related tariffs. Meanwhile, reports emerged that Washington and Moscow are moving toward a peace agreement that would allow Russia to retain some of its battlefield gains in Ukraine. Such a deal would represent a major de-escalation of one of the most persistent geopolitical flashpoints in recent years, reducing concerns over supply disruptions and further unwinding the war-related risk premium in energy markets.

The improving geopolitical backdrop is eroding the risk premium that had helped support crude earlier this year. Market attention has shifted away from Iranian tensions and Houthi disruptions, while narrowing time spreads point to a loosening physical market. With geopolitical risk fading and OPEC+ steadily adding barrels, the market is increasingly focused on the risk of oversupply later this year. The combination of slowing demand growth and rising production raises the likelihood of a supply glut in the months ahead. AEGIS maintains a neutral outlook on prices with a bias to the downside.

September Henry Hub falls below $3/MMbtu in third weekly loss

The prompt month natural gas contract fell 9c this week, settling below $3/MMbtu and near a new year-to-date low. Forward prices also moved lower, with Winter ‘25/’26 losing 11c to finish the week at $3.95/MMbtu, and Summer ’26 falling 8c to settle at $3.74/MMbtu. These price moves came despite a relatively bullish EIA storage report and near-record feedgas LNG feedgas demand.

The EIA reported a 7 Bcf injection into underground storage for the week ending August 1. This was at the lower end of the expected range and resulted in a shrinking of the storage surplus from +195 Bcf to the five-year average to +173 Bcf. Despite this shrinking of the storage surplus, our projection for gas storage to start winter remains at 3.95 Tcf. If this projection pans out, this would be near the top of the five-year range for storage. With inventory projections where they are, it makes sense that some of the winter risk premium has come out of the market.

However, even if we begin winter with a high inventory level, our projections show a steep drawdown. Assuming ten-year average weather, our March 2026 storage projection sits at 1.7 Tcf, which is about 200 Bcf below the five-year average. This drawdown in inventories is driven by increasing LNG feedgas demand this winter as Plaquemines LNG, Corpus Christi Stage 3, and Golden Pass LNG start up. This scenario would provide bullish support to prices in 2026 and 2027.

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.