Week Ending September 26

Geopolitical tension lifts oil, but outlook remains bearish

The WTI prompt-month contract climbed to its highest level in nearly two months, rising $0.74 on Friday to settle at $65.72/Bbl, as markets balanced intensifying geopolitical risks against signs of additional supply returning to the market.

In Europe, Ukraine ramped up its drone strikes on Russian energy infrastructure, with fresh attacks reported on the Afipsky refinery in southern Russia and facilities along the Black Sea coast. Bloomberg reported the strikes have taken more than 7% of Russia’s refining capacity offline, spurring domestic fuel shortages and prompting Moscow to consider curbs on diesel exports. Despite these setbacks, Russian crude exports remained resilient. As volumes were diverted from refineries to export terminals, seaborne shipments climbed to a 16-month high of 3.62 MMBbl/d, underscoring the difficulty of materially curtailing Russian flows even as refinery output falters.

At the same time, Western leaders escalated their rhetoric. President Trump urged NATO allies to shoot down Russian aircraft violating allied airspace and pressed Turkey and Hungary to halt Russian oil purchases. Canadian Prime Minister Mark Carney called for swift implementation of secondary sanctions, while France emphasized that Europe’s remaining Russian imports are now “very marginal.”

Yet, potential disruptions to Russian supply were countered by new sources of oil coming back to market. Iraq announced a breakthrough deal to resume Kurdistan exports via the Ceyhan pipeline. Initial flows are expected around 230 MBbl/d, with volumes potentially rising to 400–500 MBbl/d over the coming months as new fields ramp up. This development highlights how regional supply gains are helping offset geopolitical risks elsewhere.

On the demand side, U.S. consumer confidence softened in September, with the Michigan sentiment index falling to 55.1 from 58.2 in August and finishing slightly below expectations. A similar tone emerged in the Dallas Fed Energy Survey, where the Business Activity Index stayed negative at -6.5 and nearly four out of five executives reported delaying investments due to rising costs and uncertainty. Both households and producers appear cautious, holding back on spending until inflation cools and demand signals become clearer.

While heightened geopolitical tensions supported crude prices this week, the fundamental backdrop continues to point toward oversupply. The resilience of Russian exports, the resumption of Kurdish flows, and sluggish domestic demand all reinforce expectations of a surplus heading into 2026. AEGIS maintains a bearish outlook.

October Henry Hub posts third weekly loss into contract expiration

The October Henry Hub contract is set to expire today, with prices down 6c this week to $2.83/MMbtu. Further out, prices were mostly flat with Winter ‘25/’26 down 2c to $3.74/MMbtu and Summer ’26 down 2c to $3.73/MMbtu. The decline in prices came despite a tightening of the supply-demand balance this week, while the outlook for this upcoming winter remains unchanged.

On a national basis, the supply-demand balance tightened this week, with total supply down 0.2 Bcf/d and demand up 1.79 Bcf/d, according to S&P data. The weaker supply was driven by ongoing pipeline maintenance reducing dry gas output, slightly balanced out by higher Canadian imports. Stronger power, LNG, and Mexican export demand drove the increase in total demand for the week. This should show up as a smaller storage build in next week’s EIA inventory report. Our modeling still shows Lower-48 inventories starting winter elevated to the five-year average but quickly converging and falling below average around February. This would imply a potentially bullish skew to gas prices in Winter ’25/’26.

In the news, supportive signs for the LNG buildout continued to materialize. Golden Pass LNG, the next facility to enter service, received a key permit from the Department of Energy allowing them to re-export an imported cargo of LNG that was sued to cooldown facility equipment. This is one of the steps needed before commercial operations, set for December, can begin. Sempra reached final investment decision on Stage 2 of the Port Arthur LNG plant, in which Stage 1 is currently under construction. Stage 2 will add an additional 1.74 Bcf/d in 2030 and 2031. In addition to these announcements, it was reported by Bloomberg that Delfin Midstream is nearing FID for its offshore LNG export plant. The 1.76 Bcf/d Delfin LNG Phase 1 will be located south of Louisiana and is expected to reach FID by November of this year.

AEGIS holds 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, given call-put skew levels.