Week Ending January 30

Near-term geopolitical risk lifts crude despite persistent structural surplus

Crude markets strengthened this week as escalating US–Iran tensions injected a geopolitical risk premium into prices, even as the underlying global balance remains structurally oversupplied. WTI climbed above $66/Bbl at its peak, the highest level since late September, as markets reassessed the risk of disruptions to Middle Eastern supply and shipping routes.

Geopolitics was the dominant driver. Renewed US military posturing and Iranian warnings of retaliation revived concerns over Gulf crude flows and transit through the Strait of Hormuz. Citigroup estimates the Iran-related geopolitical risk premium at roughly $7–10/Bbl for Brent. Options markets reflected this shift, as bullish call positioning outpaced bearish puts for the longest stretch in more than a year, signaling rising demand for upside protection.

Near-term physical factors provided secondary and often offsetting signals. Winter storm disruptions across the US briefly affected production, but refinery outages and industrial slowdowns along the Gulf Coast weighed on near-term crude demand, limiting the upside from weather-driven supply losses. At the same time, attention turned to OPEC+, with the group widely expected to maintain its current supply policy and pause further increases amid seasonally weaker demand.

Despite these near-term tailwinds, the structural picture remains unchanged. The EIA continues to project that global production will outpace demand growth through the medium term, with inventories rebuilding across 2026 and 2027. Persistent surplus barrels, driven by non-OPEC supply growth and incremental OPEC+ volumes, continue to anchor the forward curve, even as backwardation at the front end reflects elevated geopolitical risk and sensitivity to marginal disruptions.

This week’s price action underscores a familiar pattern. Geopolitical risk can lift prompt prices, but it rarely alters the underlying balance without sustained supply losses. In this environment, rallies remain vulnerable. AEGIS maintains a bearish view on crude, with upside constrained by persistent oversupply and rising inventories.

Natural gas rally continues as weather outlook remains bullish

The February Henry Hub contract expired this week, making March the new prompt contract. February rolled off near contract highs, settling at $7.46/MMbtu, the highest monthly Henry Hub settlement since 2022. March became prompt at $3.92/MMbtu, but finished the week up 70c at $4.30/MMbtu. Meanwhile, prices for next summer and winter both rallied. Summer ’26 gained 41c to settle at $4.30/MMbtu, and Winter ‘26/’27 rose 33c to finish at $4.70/MMbtu. These are the highest levels for the next summer and winter strips since early December.

Near-term fundamentals have begun to normalize in the aftermath of winter storm Fern, which pushed weather-driven demand to seasonal highs, shut off significant amounts of supply, and sent gas prices higher. Res/com, industrial, and power demand peaked last weekend, at a combined total of 143 Bcf/d, according to data from S&P. Dry gas production dropped to a low of 97 Bcf/d as gas wells froze in several producing regions from the South Central to the Northeast. Increased imports from Canada and reduced utilization at LNG export plants helped balance supply-demand, but the withdrawal from underground storage was still massive. It is likely that 350+ Bcf was pulled from storage this week, which will be reported by the EIA next Thursday.

While this week’s storm drove the February contract’s gains, the two-week forecast still looks bullish, lending further support to the March contract. As of this morning, Lower-48 population-weighted average temperatures are forecast to be 5-10 ºF below the ten-year average for the entirety of the two-week forecast period, although not quite as cold as last weekend. If these forecasts pan out, this will drive a continued erosion of gas inventories. After the warm start to January, storage is back above the five-year average, but this surplus will be erased and turned into a sizeable deficit over the next several EIA reports. This has major implications for gas prices this summer and next winter. Our model projects inventories at the start of summer being about 300-350 Bcf below the five-year average. This is a major shift from just a few weeks ago when it looked like inventories would follow a relatively neutral path this summer. Barring any bearish shifts in the demand outlook, this would likely mean a material amount of power demand needs to be shut off this summer or that supply needs to grow materially in advance of next winter. It appears the market is trying to balance this with the rally in forward prices encouraging these factors.