Geopolitical risk premium re-enters crude markets

Oil, fundamental analysis

After a period of consolidation, crude prices moved steadily higher this week right through the $64/$65/$66/bbl levels but have now breached a key technical indicator that signals they have gone too high, too fast.

The geopolitical risk premium in oil prices rose this week in the form of sanctions and outright attacks on Russian infrastructure along with Russian jets entering the airspace of neighboring NATO member countries. A slight draw in crude inventory with larger declines in refined products stored also added some support for prices.

WTI was as low as $61.85/bbl on Tuesday with its high on Friday at $66.45. Brent crude hit its low on Monday at $66.10/bbl with its high of $70.75 occurring Friday. Both grades look to settle higher week-on-week. The WTI/Brent spread has widened to $4.35.  

Ukraine drone strikes continue to target Russian refineries which is impacting the production of diesel and gasoline. Russia has been banning gasoline exports and will now ban diesel exports through the end of the year. However, Russia has been able to resume crude exports from its main hub after drone attacks occurred Wednesday. And, with the reduced refinery consumption, Russia has increased its oil exports to 3.2 million b/d this month.

While not directly impacting Russian energy exports, recent flyovers into NATO countries by its military jets has created a new area of geopolitical tensions especially as US Presiddent Donald Trump encouraged the NATO members to shoot them down. Russian jets have also been conducting flights off of Alaska.

Meanwhile, traders are waiting for the impact of the more recently announced EU sanctions on oil entities in countries dealing with Russia’s oil sector. And, despite Trump’s attempt to pressure Hungary into cutting Russian energy imports, Prime Minister Orban at a White House meeting reinforced his country’s need, and right, to purchase energy from Russia to keep its economy running. It’s a similar stance to the one taken by India which has recently suggested that, if allowed to purchase crude from Venezuela and Iran, it could reduce its imports of Urals.

Finally, Iraq has indicated that exports from Kurdistan of about 240,000 b/d will finally resume after the 2-year halt.

The Energy Information Administration’s (EIA) Weekly Petroleum Status Report indicated that commercial crude oil inventories for last week decreased by 0.6 million b/d while the Strategic Petroleum Reserve was up 23,000 bbl to 406 million bbl.

Total US oil production was 13.5 million b/d vs. 13.2 last year at this time.

Recent EIA data indicates that 2025 will be another annual record for oil production as year-to-date supply has averaged 13.44 million b/d, 1.9% above last year’s record pace. However, the agency predicts slower growth ahead due to rising costs, depleting prime acreage, increased capital discipline among producers and, infrastructure bottlenecks.

Sales of existing homes last month fell -0.2% leading to an inventory of 4.6 months of supply. The PCE index, the Federal Reserve’s preferred inflation gauge, rose last month but not enough to discourage possible future interest rate cuts. The index was +0.3% for August and +2.7% from August 2024. Investors are optimistic about another rate reduction next month but less so for November. US Personal Spending rose +0.6% In Aug vs. an expectation of +0.5%. All (3) major US stock indexes are lower week-on-week as investors gauge the impact of the PCE report. The USD Is higher which may keep a cap on crude’s rally.

Oil, technical analysis

November 2025 WTI NYMEX futures prices shot through the 8-, 13- and 20-day Moving Averages this week to above the Upper-Bollinger Band limit (a measure of =/- 2 Standard Deviations from the Mean). This is normally a Sell signal as 'reversion to the Mean' is fairly consistent over time.

Volume is around the recent average at 200,000 as November became the 'prompt' month this week. The Relative Strength Indicator (RSI), a momentum indicator, is in 'overbought' territory at 62, another potential Sell signal. Resistance is now pegged at $66.50 while near-term critical Support is $65.00.  

Looking ahead

While there have been numerous drone attacks on either side of the Russia/Ukraine war, we are still not seeing substantial interruption in Russia’s exports of crude. The proposed tighter EU sanctions and Trump’s harping on EU countries to walk away from Russian energy will have to show actual physical reductions in Russian output.

In the Tropics, Hurricane Gabrielle became a Cat-3 at one point in its development but continues moving northward in the Central Atlantic. The high-pressure systems bringing the cooler weather down into the US for the fall season are steering tropical systems away from the Gulf of Mexico. And while the official end to hurricane season is Nov. 30, the peak period for storms is mid-September to mid-October. 

Natural gas, fundamental analysis

October NYMEX natural gas futures settle this week and continue to stay below the key $3.00/MMbtu mark on cooler weather and continuing storage builds. The week’s High was $2.97 /MMbtu on Thursday while the week’s Low was $2.77 on Monday. Supply last week was -0.1 bcfd to 111.7 bcfd vs. 111.8 the prior week. Demand was up 2.7 bcfd to 101.3 bcf vs. 98.6 bcfd the week prior, with the biggest increase in  Power sector on the latent summer heat. Exports to Mexico were 7.2 bcfd vs. 7.1 the prior week. LNG exports were 16.3 bcf vs. 16.2 bcfd the prior week.

Dutch TTF prices rose slightly to $11.25/MMbtu while Asia’s JKM was quoted at $11.30/MMbtu. The EIA’s Weekly Natural Gas Storage Report indicated an injection of 75 bcf, above the forecasted +78 bcf. Total gas in storage is now 3.508 tcf, rising to just 0.6% above last year and to 6.1% above the 5-year average. Theoretically, there are just 4 weeks left in the injection season. To achieve a season-ending volume of 3.9 tcf, injections would have to average 98 bcf per week and +123 bcf to reach 4.0 tcf.

Natural gas, technical analysis

October 2025 NYMEX Henry Hub Natural Gas futures have fallen below the 8-, 13- & 20-day Moving Averages. Volume was 5,000 as October reaches Final Settlement Fridan and traders turn their attention to November futures. The RSI is slightly oversold at 41.  Critical Support is pegged at $2.80 (Lower-Bollinger Band) with key Resistance at $2.95.  

Looking ahead

Storage volumes heading into the winter season are above-average at this point however, there are still robust spreads from November to December, January for February which may encourage more injections. The NOAA 8–14-day forecast indicates a potential extended summer for a large area of the country which could result in A/C demand for gas fired-generation. However, above-normal temperatures take on a new level as fall approaches. The storage spread for natural gas still exists as October is trading around $2.89/MMbtu while December is $3.80, and January is $4.15. Those with remaining capacity may take advantage of this spread which will provide price support even with cooler temperatures.