Daily Energy Market Update-August 26, 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

Oil prices have retreated over the past two sessions, entering into a more pronounced technical correction to the short-term overbought after the rally over the prior two weeks.

The gains reflected growing recognition that there’s no easy resolution to the US-Iranian conflict that has greatly reduced tanker traffic through the Strait of Hormuz.  At the same time, the market is viewing the US pivot toward pressuring Iran’s trading partners as a somewhat measured response after US Treasury Secretary Scott Bessant provided few fresh details at Monday’s press conference on what had been touted as an “economic D-day”

Although US statements have yet to name specific countries, it’s well known that China is Iran’s largest trading partner and buyer of its crude oil.  By going slow, the US seems to be allowing some room for voluntary cooperation, rather than forcing a show-down.  And clearly the US has its own direct trade issues with China as a related complication.

Iran’s response to the ecomomic pressure will also be critical.  So far, they have publically warned their trading partners against cooperating, but the wider resistance to the lack of a peace agreement may also include renewed military threats to tankers as they seek to maintain their leverage over the Strait of Hormuz.

Crude Oil

Wednesday’s trade will also factor in the latest weekly inventory data.  Consensus expectations are for commercial crude oil inventories to be little changed, but Tuesday’s American Petroleum Institute figures showed a 4.2 mmbls build instead.  As one known component we that 3.7 mmbls of supply for last week was the latest release from the Strategic Petroleum Reserve.

While the wider market was anticipating little change in crude stocks, we had penciled in a 4-6 mmbls draw for the week ended August 21 as both an expression of the recent trend of week-to-week tightening and a closer match with the five-year average outcome.  The seasonal tendency reflects the preference of refiners to draw down stocks at the end of summer, ahead of planned refinery maintenance work.  In this context, a stock build would look bearish.

The further price decline from the $94.82 high for nearby October Brent reached on Friday has already retraced more than half the gain from the $78.12 low reached on August 5, qualifying as a normal technical correction so far.  This also adds to the importance of resistance at last week’s $87.69 high for October WTI, a near match with the $88.07 peak from July 23 in turn.

Heating Oil (ULSD)

Heating oil prices have led the way lower in recent trade, in apparent correction to what had been the most overbought condition within the wider petroleum complex.  The fundamental support from international refinery outages that helped draw down US total distillate inventories to 13% below their five-year average had propelled the heating oil crack spread over WTI crude oil price to record levels.

Over the past month, US distillate inventories have declined by an average of 1.0 mmbls per week and so we’d anticipate a further draw on the order of 0.5-1.5 mmbls in the DOE data for the week ended August 21.  As an early indication, we note the less definitive American Petroleum Institute data based on a smaller survey of firms posted a 0.5 mmbls draw on Tuesday, reinforcing the expectation for a decline.

While distillate stocks are extremely tight and may tighten further, heating oil prices have already achieved a record valuation that may prove difficult to sustain.  October heating oil futures have already settled for as much as $97.50 per barrel over WTI crude oil on August 18 but fell to a settlement of $89.55 on Tuesday.  Thus, heating oil has fallen by $7.95 more than crude oil over the past week.

On an outright basis, October heat oil has fallen from a peak of $4.4400 and may find some technical support in the $4.00 area.  We’d expect to see more support scale in from $3.80 down to $3.60 in the event of a further retreat. 

RBOB Gasoline

The US gasoline futures have declined the past two days in line with the drop in crude oil, with October RBOB futures maintaining a crack spread premium close to the $40.00 per barrel mark.

While gasoline has been less affected than the distillate market by international refinery outages, US total gasoline inventories have been relatively lean, 5% below their five-year average level as of August 14.  At this time of the summer refiners are typically drawing down stocks of summer specification fuel and we’ve penciled in a 0.5-1.5 mmbls draw for the week ended August 21.  Wednesday’s DOE report will give the more definitive assessment, but the 3.2 mmbls drop in Tuesday’s American Petroleum Institute data suggests a bullish surprise.

October gasoline continues to trade at a crack spread premium over WTI crude oil near $40 per barrel, a valuation close to where it was a month ago.  The upcoming Labor Day holiday represents the traditional end of the summer driving season, with demand set to fade.  But at least initially, the September-October cycle of seasonal refinery maintenance will result in an offsetting decrease in supply. 

US Natural Gas

The US natural gas market continues to express its characteristic independence, both from the petroleum market and the international price of natural gas.  Storage levels and US weather patterns remain the dominant factors.  In Thursday’s DOE storage report for the week ended August 21, consensus expectations are for 18-20 bcf in net injections, a modestly supportive figure compared with the 33 bcf five-year average gain.

In addition to its independent fundamentals, the natural gas market also features strong seasonal price patterns with the winter strip routinely trading at a significant premium to summer values. With that in mind, we note that nearby September futures are consolidating in the $2.80 vicinity, a step up from both the $2.622 low from last August and the $2.495 low from March.

While the nearby price looks conservatively valued, the risk/reward profile for December looks different with the market probing below the $3.50 level in recent sessions but attempting to hold near the lower boundary of the established declining price channel.

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.