Week Ending February 6

Crude volatility persists even as diplomacy eases disruption risk

On Friday, WTI settled at $63.55/Bbl, down $1.66 from the prior week’s close, underscoring how quickly geopolitical support can fade when disruption risk fails to materialize. Crude markets moved through another week dominated by shifting US–Iran headlines, reinforcing a familiar dynamic in which geopolitics drives short-term volatility without altering the underlying supply and demand balance.

As negotiations between Washington and Tehran in Oman unfolded, the geopolitical outlook shifted toward contained uncertainty rather than imminent escalation. Discussions centered on nuclear issues, signaling incremental de-escalation while leaving broader tensions unresolved. Despite this moderation in headline risk, activity in financial markets told a more nuanced story.

According to Bloomberg, second-month 25-delta call skew has climbed to its highest level since March 2022, a period of extreme geopolitical upheaval following Russia’s invasion of Ukraine. In practical terms, this indicates traders are paying a premium to protect against a sudden price spike even as diplomacy reduces the most immediate disruption threat. The pattern reflects concern about tail-risk escalation rather than conviction in a sustained rally. Strong inflows into oil-linked investment vehicles reinforce this dynamic, suggesting capital is seeking protection against geopolitical surprises rather than signaling a durable tightening in physical balances.

OPEC+ reaffirmed its March production pause while signaling gradually improving spring demand, leaving second-quarter supply policy as the more consequential variable ahead. At the same time, softer economic signals have renewed concern around the durability of US demand, reinforcing expectations that supply growth will continue to outpace consumption throughout the year.

The start of US–Iran nuclear talks in Oman has eased prices following January’s rally, though limited clarity around the outcome leaves room for renewed volatility as headlines evolve. AEGIS maintains a bearish crude outlook, with rallies likely to fade as geopolitical premiums ease and the market returns to a fundamentals-driven regime.

Natural gas posts sizeable weekly loss despite record storage draw

The March henry Hub contract fell 92c this week, as extreme prompt month volatility continues in the aftermath of last week’s winter storm. The next few seasonal strips also traded lower, with Summer ’26 falling 70c and next winter losing 41c. Most of the selling pressure was seen on Sunday night and into Monday, once trading reopened after the weekend. Monday’s losses were so large that it was actually the largest single day drop in a summer seasonal strip going back to at least 2010.

Fundamentals normalized this week, with production slowly returning to pre-storm levels following last week’s freeze-offs. Weather-driven gas demand slid lower as temperatures warmed up, and LNG feedgas went back to 20 Bcf/d. However, the outlook for near term gas consumption started the week much lower than on Friday. Last week ended with weather models showing a continuation of the colder-than-average temperatures throughout the two-week forecast period. Over the weekend and into Monday this reversed, resulting in the fall seen across the forward curve.

The EIA’s weekly natural gas inventory report set a record this week, showing a -360 Bcf withdrawal for the week ending January 30. While this was smaller than the median expectation, it did beat out the previous record withdrawal by 1 Bcf. This pushed Lower-48 inventories into a deficit to the five-year average, with total storage now 27 Bcf below average. Our modeling shows inventories remaining below average through the end of winter and into the injection season, assuming ten-year average weather.

One other notable development this week was the announcement by Exxon that Golden Pass should begin producing LNG in March. Previous guidance said that the first cargo from Golden Pass would ship in February, so this announcement does represent a slight bearish shift in the timeline. Trains 2 and 3 are currently expected to start up this summer and at the end of 2026, but the delay of Train 1 has led some to begin fading the timeline for Trains 2 and 3. While it does appear that the 2.4 Bcf/d export plant will begin taking more material volumes of gas soon, a delay would reduce the expected tightness in the supply-demand balance, or at least push it forward slightly.