Oil, fundamental analysis

Global crude oil prices have now been on a 10-day, +$24.50/bbl rally spurred by increasing military actions on both sides of the Iran war. Furthermore, rebel groups have entered on the side of Iran. Strategic Petroleum Reserves (SPR) inventories declined again while commercial stocks saw a minor draw. Both gasoline and distillate storages showed increases.

WTI’s High was Friday’s $104.45/bbl for October while the Low was Tuesday’s $91.80 (markets were closed Monday). October Brent crude also hit its High also on Friday at $109.95/bbl with the low on Monday at $95.95. After running “too high, too fast,” the market retreated on Friday. However, both grades settled considerably higher on the week. The WTI/Brent spread has now widened to $5.35. This week’s prices were the highest in 90 days.

Yemen-based Houthi rebels have entered the regional conflict by attacking Saudi Arabian oil infrastructure on the Red Sea. They managed to capture the port city of Mokha and the island of Perim. Perim sits in the middle of the Bab el-Mandab Strait and essentially divides the strait into two distinct shipping lanes. Bab el-Mandab is the gateway to the Gulf of Oman. Blocking the strait would force Saudi oil shipments to move north in the Red Sea to the Mediterranean Sea, a route that would then involve circumnavigating the African continent to get to Asian markets. Saudi oil production for August was down 1.9 million b/d to about 6.0 million b/d.

The US Navy hit three Iranian oil tankers, halting their efforts to pass through the Strait of Hormuz. Meanwhile, Iran has struck two vessels near Oman. There has been some talk that certain entities are working with Iran about safe passage arrangements, which is part of the reason for Friday’s lower prices. Meanwhile, at its meeting last Sunday, OPEC+ agreed to maintain its current output levels for October.

The International Energy Agency (IEA) now says the recovery of regular oil flows in both the Persian Gulf and Red Sea regions will not occur until next year. Furthermore, it expects demand for oil this year to drop by 2.5 million b/d to 102.4 million b/d and compared the demand destruction to that caused by the 2008 global financial crisis. Its previous estimate indicated a decline of 1.6 million b/d.

In another note, the agency also reported that Russian oil refinery capacity is estimated to be 30% lower as a result of the attacks by Ukraine. Russia is the world’s third-largest exporter of refined products, and this situation is playing a role in the record high diesel prices.

The Energy Information Administration’s (EIA) Weekly Petroleum Status Report indicated that commercial crude oil inventories for last week decreased while SPR was down 1.2 million bbl to 285 million bbl (the lowest level since 1982). Oil production did climb to 13.9 million b/d. 

Wholesale prices for August rose 0.4% per the PPI report. The CPI for August held at 3.4% with energy up 2.1% and food costs up 0.1%. At the start of the year, inflation was 2.4%. As a side note, analysts are also looking at the inflationary impact of AI datacenters and the shortage of microchips which is increasing those costs in everyday consumer electronics. The chance of a rate increase by the Fed has now risen to 87% in the market. Consumer sentiment fell this month to 47.8 vs. August’s 51.7 as higher prices weigh on their minds.

The stock market posted gains on Friday as investors reacted to the inflation news as a positive since there is now more clarity on the action the Fed must take to reign it in. However, all 3 major US stock indexes were lower week-on-week. The USD is only slightly lower on the week as is gold.

Oil, technical analysis

October WTI NYMEX futures remained in overbought territory this week on the escalation in attacks. Prices are above the 8-, 13-, and 20-day Moving Averages. Volume is near the recent average at 300,000. The Relative Strength Indicator (RSI), a momentum indicator, is very overbought at 74. Resistance is now pegged at $100.15 (Upper-Bollinger Band) while near-term Support is $98.50 (Friday’s Low).

Looking ahead

The Houthi rebels' entry into the Iran war adds another element to the possible stifling of crude shipments out of the Middle East. Logistically, holding the Perim Island would allow the rebels to launch missiles in both directions at targets moving north or south. Markets will have to watch for Saudi Arabia’s reaction while the US has stated it will not send troops to assist the kingdom.

The economic noose is tightening around Iran especially with the US Navy’s direct attack on its oil tankers. There are also reports that Iran is rebuilding a damaged nuclear fuel plant high in its mountains.

NOAA is now asserting a 90% chance of a very strong El Nino system for North America as sea-suirface temperatures (SST) in the Pacific are +3⁰C. El Ninos tend to create mild winters for the Northern US but increased hurricane activity in the Southern US due to higher SST. That could impact Gulf of Mexico production while lessening the demand for heating oil in the northeast. 

Natural gas, fundamental analysis

October NYMEX Henry Hub Natural Gas futures moved lower this week as traders look to the post-summer weather and as a slightly higher-than-forecasted storage injection was reported. The week’s High was Monday’s $3.01/MMbtu while the Low was Thursday’s $2.75. Natural gas demand this week has been estimated at about 115 bcfd while supply was thought to be 120 bcfd. LNG exports were 18.7 bcf while exports to Mexico were 7.3 bcfd.

In the UK, natural gas prices at the NBP were most recently higher at $27.00/MMbtu. Dutch TTF futures were also much higher at $28.00/MMbtu. Asia’s JKM was quoted at $24.82/MMbtu as Asian and European markets are essentially competing for the same shipments.

The EIA’s Weekly Natural Gas Storage Report indicated an injection of 40 bcf vs. a forecast of +28 and a 5-year average of +52 bcf. Total gas in storage is now 3.254 tcf, 1.5% below last year and 5.2% above the 5-year average.

Natural gas, technical analysis

October 2026 NYMEX Henry Hub Natural Gas futures have fallen below the 8-, 13-, and 20-day Moving Averages. Volume is below the recent average at 90,000. The RSI is neutral at 45. Support is $2.80 with Resistance at $2.85 (20-day MA).

Looking ahead

European gas storage levels are at concerningly low levels and most of the LNG shipments making it out of the Persian Gulf are bound for Asia. Meanwhile, the US is sending out almost 19 bcfd which is largely destined for the UK and EU.

The 8-14-day forecast indicates moderating temperatures in the northeast with above-normal temperatures still existing in the Southern Tier and SW. As the heat mitigates, look for increasing storage volumes each week.