Week Ending May 22

Crude Pulls Back as Diplomacy Gains Momentum, Though Physical Tightness Persists

Crude prices cooled this week as traders weighed the possibility of a diplomatic breakthrough between the US and Iran. While geopolitical risk remains elevated, the absence of a major escalation and renewed negotiations pressured prices lower throughout the week. On Friday, the WTI prompt-month contract settled at $96.60/Bbl, down $8.82 from last week’s settlement.

Early in the week, President Trump announced that another major offensive strike against Iran would be put on hold. The UAE, Qatar, and Saudi Arabia have all reportedly urged the US to give diplomacy another chance, fearing renewed military action could trigger additional economic disruption across the region. Still, conflicting headlines continued to drive choppy price action throughout the week. Reuters reported that Iran’s Supreme Leader, Ayatollah Mojtaba Khamenei, has prohibited the transfer of Iran’s enriched uranium stockpile abroad, underscoring how far apart both sides remain on key nuclear issues. At the same time, five Middle Eastern countries formally rejected Iran’s proposed Persian Gulf Authority, which would grant Tehran greater control over traffic through the Strait of Hormuz. Secretary of State Marco Rubio said there had been “slight progress” in negotiations, though both Washington and Tehran continue to resist major concessions surrounding nuclear capabilities and any potential Hormuz tolling system.

Meanwhile, Goldman Sachs estimated global visible oil inventories have declined by a record 8.7 MMBbl/d so far in May, nearly double the average draw pace seen since the conflict began. Domestically, US crude inventories, including the Strategic Petroleum Reserve, fell by a record 17.8 MMBbls last week. US crude exports have surged to 5.6 MMBbl/d, roughly 40% above pre-conflict levels, while Cushing inventories have declined for four consecutive weeks toward minimum operating levels as Midwest refiners pull barrels ahead of peak summer demand.

Although the ceasefire remains in place and diplomacy continues, the path toward a lasting resolution remains uncertain. There appears to be little appetite for another major military escalation, but even a negotiated agreement may not immediately restore Hormuz flows to pre-conflict levels. As inventory buffers continue to erode, the market increasingly appears to be pricing in tighter medium-term conditions rather than a quick return to oversupply. The futures curve remains in backwardation, signaling ongoing prompt supply tightness, while the Cal 2027 strip holding near $75/Bbl reflects growing expectations that a higher-for-longer pricing regime could persist beyond the immediate conflict window. AEGIS maintains a neutral outlook.

Henry Hub Settles Lower After Rallying Above $3/MMBtu

The June Henry Hub contract traded higher for much of the week, before prices turned lower heading into the weekend. The prompt contract reached as high as $3.14/MMBtu, but settled lower, at $2.90/MMBtu. Forward prices declined sharply, especially this upcoming winter season. The Winter ‘26/’27 seasonal strip lost another 12c this week to settle at $3.75/MMBtu, the lowest level in several years.

Gas power demand should trend higher over the coming weeks as Lower-48 temperatures rise. The shift from heating demand to cooling demand has finished, with power demand now the driver of weather-driven gas demand. Temperatures are forecast to be relatively close to the ten-year average for much of the next two weeks, but low gas prices may support additional consumption by the power sector. Since April, Lower-48 weekly average gas power demand has been consistently higher than the five-year average. This has been driven by warmer temperatures over the shoulder season and low gas prices supporting power burns.

LNG feedgas demand has begun to recover from recent maintenance-driven lows. Inflows into Lower-48 LNG export plants rose to 18.5 Bcf/d on Friday, from a low of 17.4 Bcf/d. Feedgas flows at Golden Pass LNG fell to zero for several days, as the recently started export plant underwent maintenance. Most facilities currently undergoing maintenance should be returning to normal levels over the next week or two. This reduction in total demand has loosened the weather-adjusted supply-demand balance over the past two weeks, which we calculate as having been neutral compared to relatively tight conditions preceding it.

The EIA reported a 101 Bcf injection into storage this week, which shrunk the storage surplus for the first time in five weeks. Over the course of the summer injection season, assuming ten-year average weather, inventories are projected to remain above average and start the winter withdrawal season around 3.92 Tcf. However, a hotter summer would help normalize inventories. By our calculations, a summer similar to 2018, which was the hottest of the past ten years, could result in inventories ending the injection season slightly below the five-year average, around 3.75 Tcf.