Week Ending June 5

US-Iran Uncertainty Keeps Geopolitical Risk Elevated

Crude prices continued to swing on headlines related to a potential US-Iran agreement this week. Although prices remain below $100/Bbl, uncertainty surrounding a possible deal helped keep crude supported. On Friday, WTI settled at $90.54/Bbl, up $3.18 from the previous week’s close.

Prices moved higher early in the week after Iran announced it was suspending communications with the US, citing Israel’s expanded military operations in Lebanon as a violation of ceasefire understandings. Iran has indicated that any broader agreement will likely depend on progress toward a ceasefire in Lebanon. President Trump said discussions with Iran continue to advance, while Lebanon’s Hezbollah rejected a US-backed ceasefire proposal aimed at ending hostilities with Israel.

With no agreement in place, flows through the Strait of Hormuz remain materially disrupted. The supply interruption has begun to affect consumption patterns and trade flows. Reduced access to Middle Eastern crude weighed on imports across Asia, contributing to a sharp decline in Chinese crude arrivals during May. According to Kpler, China’s crude imports fell to 6.7 MMBbl/d, down from an average of approximately 10.4 MMBbl/d in 2025. Goldman Sachs also noted that April oil sales data from China and Western Europe suggest roughly 2 MMBbl/d of downside risk to the bank’s global oil demand estimates for the month. Major trading houses have echoed similar concerns as Vitol estimates that approximately 4 MMBbl/d of global demand has been deferred, with some buyers postponing purchases while awaiting greater clarity on a potential US-Iran agreement.

Meanwhile, Trafigura Chief Economist Saad Rahim said elevated inventories, strategic stockpile releases, and weaker demand across parts of Asia and Africa have provided temporary relief but do not address the underlying supply risks facing the market. Paul Bloxam of HSBC Holdings warned that global oil inventories could approach critical functional levels, increasing the risk of sharper price volatility and potential supply shortages if disruptions persist.

Trump described negotiations as being in their “final stages,” though he provided few details, while Iranian Foreign Minister Abbas Araghchi maintained that talks had yet to produce meaningful results. Despite ongoing diplomatic efforts, limited evidence of a breakthrough has kept geopolitical risk firmly in focus. As a result, crude prices remain elevated while disruptions to traffic through the Strait of Hormuz continue. AEGIS maintains a neutral outlook.

Natural Gas Prices Fade After Hitting Multi-week High

The July Henry Hub contract finished the week at $3.22/MMBtu, after climbing as high as $3.40/MMBtu earlier in the week. Forward prices were little changed this week, with the Winter ‘26/’27 strip settling at $3.88/MMBtu and Summer ’27 closing at $3.20/MMBtu. Warmer weather forecasts drove prices higher to start the week but were not enough to result in a weekly gain.

After April and May weather came in at the bearish end of the range, forecasts for June show temperatures that are hotter than the ten-year average. According to Commodity Weather Group, this June could be the fifth hottest of the past 25 years, supporting gas demand. This warmer shift in forecasts combined with sentiment and speculator positioning having been very bearish recently has likely driven much of the rally in the summer months.

The National Weather Service continues to forecast a strong El Nino developing this summer and into next winter, with an 82% chance in May-July 2026, and a 96% chance in December 2026- February 2027. While every year is different, the typical pattern from a strong El Nino in the winter is for significantly milder weather. In the past 15 years, the hottest winters occurred during strong El Nino phases. Much can change between now and winter, but this would present a bearish risk.

The supply-demand balance for the remainder of the year is looking more neutral than bullish now, as new pipelines from the Permian may fill quicker than expected. The CEO of Kinder Morgan said recently that they believe the new Permian pipes will “fill very quickly”, and that basis spreads being wider than transport suggests that there is a large amount of gas waiting for pipeline capacity. Higher associated gas output also poses a sizeable bearish risk, especially as these pipes will enter service shortly before the start of the next winter season.

Based on these factors, AEGIS has adjusted the Winter ‘26/’27 and Summer ’27 outlooks to neutral from bullish. However, persistently high levels of call-put skew in the options market can still provide a benefit for producers hedging with costless collars.