Week Ending May 29

Crude Retreats as Peace Talks Progress, Physical Disruptions Persist

Crude prices sold off this week on optimistic headlines surrounding a potential peace deal between the US and Iran. Despite several military exchanges, the decline deepened throughout the week, with prices settling at $87.36 on Friday, $9.24 lower than the previous week's settlement. The prospect of continued negotiations has helped erode some of the geopolitical risk premium that had supported crude prices in recent weeks.

As of Friday, the latest reporting indicated that the US and Iran have reached a preliminary framework that would extend the current ceasefire for 60 days while negotiations continue over Tehran's nuclear program. Military exchanges throughout the week underscored the fragility of the still-unresolved agreement, as President Trump has not formally approved the proposal and Iranian officials have indicated that the final text remains under negotiation. US officials continue to maintain that reopening the Strait of Hormuz, addressing Iran's stockpile of highly enriched uranium, and ending its nuclear program remain core conditions of any lasting agreement.

Beyond the headlines, flows through the strait have yet to normalize despite the apparent progress between the two countries. The ongoing disruption continues to be offset in part by emergency stockpile releases, as the market has been forced to draw on buffers that existed prior to the conflict. According to Morgan Stanley, countries within the International Energy Agency have implemented roughly 150 MMBbls of their planned 400–426 MMBbl emergency stockpile release. These releases have averaged approximately 2.5 MMBbl/d since April, with the US and Japan leading the effort, releasing 133 MMBbls and 99 MMBbls, respectively.

Domestically, inventories at Cushing, OK declined by another 2.8 MMBbls last week, marking the largest weekly draw at the delivery hub since August 2023. This brings stocks closer to the roughly 20 MMBbl level often viewed as the minimum operating threshold for the facility. The US continues to draw down crude-oil inventories, with exports remaining strong above 5 MMBbl/d on a four-week average basis. Meanwhile, the EIA's latest Short-Term Energy Outlook continues to point toward looser oil balances in 2027.

Optimistic headlines have reduced the geopolitical risk premium embedded in crude prices, but flows through the Strait of Hormuz have yet to materially improve and the future of the ceasefire remains uncertain. AEGIS maintains a neutral outlook, as the underlying fundamentals have yet to meaningfully change.

Natural gas nears two-month high on improved demand outlook

After several weeks of very limited movement in gas prices, the prompt contract is now moving higher amid an improvement in the near-term demand outlook. The July contract gained 32c to settle at $3.34/MMBtu, one of the largest weekly gains in the last several weeks. The Winter ‘26/’27 strip finished the week higher by 17c at $3.91/MMBtu and Summer ’27 gained 7c to settle at $3.19/MMBtu.

Lower-48 population-weighted temperatures are forecast to be above the ten-year average by June 5 through the end of the two-week forecast period. This follows a period where temperatures were below average, suppressing power demand. With temperatures set to climb this should provide additional gas demand, and the changes to this forecast have lifted gas prices this week.

Despite temperatures having been slightly cooler than normal lately, gas power demand has been stronger than the five-year average. This is primarily due to relatively low gas prices over the past few weeks supporting gas burns at the expense of coal.

This week, the EIA reported a 92 Bcf injection into storage, which was smaller than the median expectation. This shrunk the storage surplus by 5 Bcf, bringing it to +144 Bcf to the five-year average. If weather forecasts continue to show hotter-than-average temperatures, storage balances should tighten in June. Beyond the next several week, inventories still look set to end the summer injection season about 150 Bcf above the five-year average, although a hotter summer would likely see storage levels closer to average.