Daily Energy Market Update-August 19, 2026 Tim's Market Views

Interim Analyst:

· With regular analyst Mark Schaefer out of the office, interim market commentary will be provided by Tim Evans, founder of Evans on Energy.  Tim has experience writing daily market commentary on crude oil, heating oil, gasoline, and US natural gas since 1995, including 17 years as the Energy Futures Analyst at Citigroup.

The Petroleum Markets

In our initial take on the petroleum markets we’ll begin with a big picture overview, providing some context for the day-to-day developments.  In that regard, the US war with Iran remains the most significant fundamental event of 2026, with global crude oil production down by roughly 5 mmbpd and total petroleum liquids supply off by closer to 7 mmbpd.  Market sentiment continues to react to the cycle of attacks, ceasefires, and peace negotiations that has become more routine with each pass through the loop.  A certain degree of stability has been achieved, within what remains a volatile instability.

Russia’s war with Ukraine is also having an impact, as Ukrainian drone attacks on Russian oil refineries has created domestic fuel shortages and transformed Russia from a significant exporter of refined products into an importer, with reports of Russian demand for Indian supplies.

The drop in refinery demand for crude oil coupled with the release of strategic reserves have limited the impact on commercial crude oil inventories.  The US SPR has fallen to its lowest level since 1983, contributing to current supply but also setting up forward demand to replenish those stocks as an added support for 2027 and 2028.

US weekly petroleum data doesn’t provide a complete picture, but does give an indication of what is happening at the margin of the global market.  As of August 7, commercial crude oil inventories were 2% below their five-year average, gasoline stocks were 6% below their typical five-year level, and total distillate stocks were 12% below their five-year average benchmark.  These inventory comparisons are consistent with crude oil prices consolidating at a relatively moderate level while the October gasoline crack spread trades above $40 per barrel and the October heating oil crack spread probes record levels approaching $100 per barrel.

With US refinery margins at these high levels, we’re not surprised to see the recent refinery operating rate of 96% and anticipate a shallow cycle of seasonal maintenance over the next 2-3 months.  Given the extraordinary profit incentive, any maintenance work that can be deferred will be deferred.  Whether this is enough to ease the product tightness or just limit further tightening remains to be seen.

Crude Oil

Crude oil prices eased last week after the surprising 17.4 mmbls build in US commercial crude oil stocks.  The increase was driven by a robust 6.1 mmbls transfer out of the SPR, a jump in imports, and a drop in weekly exports.  Given the larger fundamental picture, we don’t anticipate a sustained uptrend in stocks, but Wednesday’s data could still show a smaller increase as a transition back toward the intermediate-term downtrend.  Tuesday’s less definitive API numbers showed a minor 0.3 mmbls draw for the week ended August 14, a supportive contrast with the expected build if confirmed by the DOE.

Despite the build in stocks, including a 1.6 mmbls uptick at the Cushing, Oklahoma delivery point for NYMEX WTI futures, the physical market remains tight enough to support a significant backwardation in calendar spreads, with the rising 10-day moving average consistent with an intermediate-term firming trend.

For the week ended August 14, we already know that SPR crude stocks declined by a further 5.3 mmbls to 293.4 mmbls, the lowest level since December 1982.

Renewed concern over the lack of a US-Iranian peace deal have helped lift nearby Brent crude oil prices beyond the $78.12-90.07 range of the past two weeks, expanding the upside toward the $98-102 highs from mid July as establsihed technical resistance.  Gains have been moderate so far this week, suggesting traders were not surprised by the renewed tensions with Iran.

Heating Oil (ULSD)

Heating oil prices remain well supported by international refinery outages, including the Ukrainian drone attacks on Russian refineries.  US distillate inventories typically build over the summer as refineries operate at high levels to meet driving season demand for gasoline, but stocks declined 0.1 mmbls in the week ended August 7 and were 12% below their five-year average.  Just the failure to build stocks translates into tightening on a seasonally adjusted basis, supporting concern regarding winter supplies.

Tuesday’s API data included a further 2.8 mmbls drop in US total distillate inventories for the week ended August 14, a bullish surprise if confirmed by the more comprehensive DOE report.  Even a smaller draw would still increase concern over winter heating supplies.

Given the tightness in distillate stocks, the October edition of the heating oil crack premium over WTI is trading near $99 per barrel.  In other words, heating oil is trading at more than double the price of the crude oil it’s made from.  Sellers have backed away and even light buying pushes the price higher.

There’s some background talk that the high price of heating oil, diesel, and jet fuel will drive some demand destruction at some point that will bring this market segment back into balance.  However, four-week average US implied demand was 1.9% higher year-on-year as of August 7, so it’s not here yet. 

RBOB Gasoline

The US gasoline market is in a late summer driving season transitional phase, with refiners and distributors drawing down inventories of premium summer specification fuel required in most urban markets.  This translated into a 1.0 mmbls draw from US total gasoline inventories for the week ended August 7, with stocks about 6% below their five-year average.  We can expect a further seasonal decline over the next few weeks.

Although US gasoline inventories typically trend lower over the course of August, the API reported an unexpected 1.1 mmbls build for the week ended August 14, a minor bearish surprise if confirmed by the DOE.  At the same time, since the API crude oil and distillate figures were supportive, we wouldn’t anticipate much outright selling of gasoline.  Instead, gasoline might simply lag behind the gains elsewhere across the complex.

Once the summer driving season draws to a close, implied demand will step lower, taking some of the pressure off gasoline supplies.  Refinery gasoline production will also step lower on scheduled seasonal maintenance although high ongoing crack spread margins provide an incentive to minimize downtime.

The October gasoline crack spread is trading near $40 per barrel, a highly profitable level for refiners that would seem extraordinary, if not for the fact that heating oil is trading more than $50 per barrel higher.

US Natural Gas

In contrast with all the geopolitical events roiling the petroleum markets, US natural gas has been a much more routine mix of storage and weather.  High crude oil prices may be helping to drive an increase in associated gas supply, but this is more of an extension to an established longer-term trend than a fresh development.

US working gas in storage rose 36 bcf in the week ended August 7 to 3,153 bcf.  This was 25 bcf (0.8%) less than a year earlier but 198 bcf (6.7%) above the five-year average.  A smaller 12 bcf build is expected for the week ended August 14, modestly supportive compared with 19 bcf last year and the five-year average of 29 bcf.

With storage little changed from a year ago, we note that nearby natural gas futures prices are trading just a small step above the $2.622 low tick from last August.  The $2.495 low reached back in April is also in the general vicinity.  While we can’t rule out a further decline as storage fills ahead of the winter with risk the physical price drag futures lower, we see the nearby market as already conservatively valued.

Forward natural gas valuations may be a different matter, however, with December futures falling through $3.50 on Monday and seemingly set to trend lower.  While the market fully understands that by December, heating demand will be stronger and storage will be declining, the premium winter strip may still have some room to weaken before it finds a floor.

About:

Evans on Energy founder Tim Evans has been writing daily market commentary on crude oil, heating oil, gasoline, and US natural gas since 1995, including 17 years as the Energy Futures Analyst at Citigroup.  The report brings a fundamental perspective informed by a Penn State degree in Mineral Economics that puts recent developments within their larger historical context.