Week Ending September 19

Geopolitical Risk Offsets Fed Cut as Oversupply Fears Dominate

The WTI prompt-month contract fell $0.89 on Friday to settle at $62.68/Bbl, capping a volatile week in which markets weighed renewed geopolitical risk against persistent concerns of oversupply.

Ukrainian drone strikes continued to disrupt Russian refining and export infrastructure, with attacks reported on the Saratov refinery and Baltic port facilities. According to Bloomberg, the strikes have driven product output to wartime lows. President Trump reinforced US pressure on Moscow, warning allies to halt purchases of Russian crude if they expect greater American support in the conflict. He also signaled a willingness to extend US policy on secondary tariffs to China, as already applied to India for its continued purchases of Russian barrels. Still, Trump announced “progress” in a phone call with Chinese President Xi Jinping, noting discussions on trade and the Russia-Ukraine war. The two leaders are expected to meet at the APEC Summit later this year, with Trump planning a visit to China in early 2026.

Macro factors added another layer to the choppiness. The Federal Reserve cut interest rates by 25 basis points and projected further easing in 2025. While looser monetary policy could provide some support to demand, traders remain cautious amid weaker consumption trends and ongoing trade frictions.

Domestically, the EIA reported last week that US crude inventories fell by 9.2 MMBbls, but combined crude and product stockpiles climbed to the highest level in more than a year as distillates rose sharply. The build reinforced oversupply concerns despite the headline crude draw, particularly with refinery runs lagging and exports providing only temporary relief.

The market continues to weigh these factors against a looming oversupply. The IEA raised its 2026 surplus projection, now expecting global supply to outpace consumption by 3.33 MMBbl/d, 360 MBbl/d higher than its August estimate, and warned of a near 4 MMBbl/d glut in 1H 2026. While the IEA has highlighted long-term supply risks from accelerating depletion, the near-term narrative remains one of record surpluses.

This week’s developments highlight the ongoing push and pull between geopolitical shocks and structurally bearish fundamentals. While supply risks tied to Ukraine-Russia conflict may support crude in the short term, the projected 2026 surplus continues to anchor our bearish view heading into 4Q.

Prompt month gas posts second weekly loss while forward curve rises

The October and November Henry Hub contracts fell for a second week, but prices beyond that moved higher. The prompt contract fell 6c to $2.88/MMbtu, bringing total losses over the past two weeks to -23c. Meanwhile the Winter ‘24/’25 strip gained 2c to $3.75/MMbtu, and Summer ’26 gained 3c to $3.74/MMbtu.

While price action this week was mostly driven by changes in near-term weather forecasts, gas prices fell sharply on Thursday following the weekly EIA storage report. This resulted in prompt prices dropping below the $3/MMbtu level which prices have been trading around the past few weeks. This week’s storage report showed 90 Bcf was injected into inventories last week, about 4 Bcf more than the median expectation on Bloomberg. This report also showed the surplus to the five-year average expanded to the highest level since the first week of the year, now at +204 Bcf. This is the third consecutive weekly increase in the storage surplus.

While the recent increases in the storage surplus have put pressure on near-term gas prices, our expectation remains that the supply-demand balance should tighten this winter. Based on our modeling, we expected the surplus to the five-year average to shrink and turn into a deficit around February 2026, primarily driven by higher LNG feedgas demand. This assumes ten-year normal weather, which if weather-driven demand is materially higher or lower than normal could significantly impact this projection.

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.