Week Ending September 12

Geopolitical Risk Supports Oil as Supply Surplus Looms

The WTI prompt-month contract rose $0.82 on the week to settle at $62.69/Bbl on Friday as markets priced in a renewed geopolitical risk premium amid escalating global tensions. Traders weighed supply disruption risks against an increasingly bearish supply-demand outlook.

Ukrainian drone attacks temporarily shut operations at Primorsk and three pumping stations feeding Russia’s Ust-Luga terminal. Kyiv has intensified its campaign against Russian energy assets in recent weeks to restrict Moscow’s fuel supply to the front lines and reduce export revenues. The US is also expected to press G7 allies to impose tariffs of up to 100% on Russian oil purchases by China and India, further heightening the geopolitical backdrop.

Despite these near-term risks, fundamentals remain broadly bearish. In its latest Short-Term Energy Outlook (STEO), the EIA projected significant global inventory builds through late 2025 and into 2026, keeping sustained downward pressure on prices. While the agency nudged its 2025 WTI forecast slightly higher to $64.16/Bbl, it maintained a much lower 2026 projection of $47.77/Bbl, signaling expectations for prolonged oversupply.

That view was reinforced this week as OPEC+ added fresh barrels back to the market, approving a 137 MBbl/d production quota increase for October, the first step in reviving the 1.66 MMBbl/d tranche that had been paused since April 2023. The group has signaled that future increases will depend on “evolving market conditions,” but the decision underscores its focus on market share, even at the risk of pressuring prices lower.

The IEA echoed this view, raising its forecast for the 2026 surplus and now projecting global supply to outpace consumption by 3.33 MMBbl/d, 360 MBbl/d more than its August estimate, and warning of a near 4 MMBbl/d glut in 1H 2026. Citi described the market as a “tug-of-war between increasingly bearish fundamentals and heightened political risks,” keeping its Brent forecast anchored in the low $60s.

This week’s developments highlight the tension between near-term geopolitical risks and an increasingly bearish supply-demand setup. While drone strikes and tariff threats may support prices in the short run, the projected 2026 surplus suggests downside risk remains the dominant theme heading into 4Q. AEGIS maintains a cautiously bearish outlook.

Natural gas prices turn lower, with October back below $3/MMbtu

The October Henry Hub contract lost 9c this week to settle at $2.94/MMbtu, after trading above $3/MMbtu all of last week. The Winter ‘25/’26 seasonal strip moved lower too, falling 5c to $3.74/MMbtu, but the selling pressure was limited to these parts of the curve. Summer ’26 gained 1c to $3.73/MMbtu and Winter ‘26/’27 settled 2c higher at $3.62/MMbtu. The storage surplus to the five-year average expanded for a second week on Thursday and an announcement on Friday of Permian pipeline maintenance sent West Texas gas prices sharply lower.

This week’s EIA storage report showed that the surplus to the five-year average expanded again, reaching +188 Bcf. This comes after last week’s report also showed an increase in the surplus. Since June, the surplus to the five-year average has been in a range between +150 and +200 Bcf, following the rapid increase during the first half of the year. Based on our modeling, the surplus should begin to shrink around the start of winter and potentially fall below the five-year average around February 2026. This would be a relatively bullish setup for gas prices in 2026.

While price action in Henry Hub was relatively muted, regional basis pricing in West Texas was far more volatile. Prompt month Waha basis fell more than 70c after Kinder Morgan posted a notice announcing maintenance on the Permian Highway Pipeline would significantly reduce capacity out of the Permian Basin. The notice states that on October 3 through October 16 “The total Mainline capacity on PHP will be reduced from 2,660,000 MMBtu to 1,460,000 MMBtu.” This resulted in fixed price Waha for October trading into negative territory. This is a situation that is not particularly uncommon during times of major pipeline maintenance in West Texas. Pipeline egress capacity in the region should remain somewhat limited until the second half of 2026 when new pipes enter service, exposing Waha prices to similar periods of stress.

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.