Evans on Energy Weekly Update-October 18, 2026

Evans on Energy Weekly Update

The Geopolitical Context

Crude oil surged on Friday, with nearby Brent futures touching the $110 mark for the first time since May as attacks on ships transiting the Strait of Hormuz and falling inventories combined to push the market higher.  The events underscored the broad range of geopolitical risks, with ongoing conflicts between the US and Iran, Saudi Arabia and Yemen, Ukraine and Russia.

The fight between Iranian-backed Houthi rebels based in Yemen and Saudi Arabia escalated further over the past week, with the Houthis failing to hold prior gains within Yemen along the Red Sea but still able to launch fatal attacks on the Riyadh airport.  The Houthis also targeted Saudi Aramco facilities, including their corporate headquarters.  Saudi Arabia will likely respond with fresh attacks on the Houthis.

Shipments of oil via the Strait of Hormuz that recovered to near normal levels in September (except for Iran), have come under renewed pressure as several tankers and at least one container ship have struck Iranian mines in the waterway.  Iran also rejected the US response to a proposal for reopening the Strait of Hormuz within seven days following a release of Iranian assets.  No immediate further developments are anticipated until after the US midterm elections on November 3.

The International Energy Agency gave an update on the G7 plan announced October 2 for the release of 100 mmbls of crude oil and diesel fuel reserves.  It confirmed this will go beyond completing the remainder of the 400 mmbls release of strategic reserves announced in March.  While the market speculated that as much as half the volume might be diesel fuel, the IEA said the diesel portion will be closer to 20 mmbls.

There is also uncertainty over the Trump administration agreement to buy Russian diesel fuel.  The deal would violate prior US sanctions legislation.  Russia’s ability to delivery also seems highly contingent on an end to the Ukrainian drone attacks on Russian oil refineries that had led to a Russian export ban.  President Trump has asked the two sides for a cease-fire of attacks on energy infrastructure in support of the deal, but there’s no sign that either side is adhering to that request.  The market needs to consider the possibility of additional diesel supply to the international market but may rightly assign a low probability.

OPEC Developments

While OPEC and the broader OPEC+ alliance remains a key factor in regulating the physical balance in the petroleum markets over the longer term, its influence has been weakened by recent events.  The UAE quit the group in May and founding member Venezuela has signaled its willingness to withdraw in hopes of attracting fresh investment.

OPEC+ production targets were left unchanged for November, but with output constrained by war these nominal targets are less relevant to forecasting the arc of actual production.  OPEC is also conducting a periodic review of member production capacity, with the possibility of adjusting the allocation of production targets based on the results.

Much of the media coverage of OPEC’s Monthly Oil Market Report has focused on their demand outlook, with 2026 offtake still expected to increase by 0.2 mmbpd and a stronger 2.7 mmbpd gain penciled in for 2026.  The focus has been on the differences with the DOE and International Energy Agency outlooks that put demand at a different level, although this is a normal state of affairs.

In our view, we play closer attention to the OPEC assessment of OPEC+ (Declaration of Cooperation) supply.  In this case, September output increased 920,000 bpd to 39.068 mmbpd on the back of higher output from Saudi Arabia, Iraq, and the UAE.  This pulled the 3Q average up to 38.3 mmbpd versus a call on OPEC+ crude oil of 42.7 mmbpd, implying a deficit of 4.4 mmbpd.  Even if demand is weaker than OPEC projects, the market likely remains in deficit, an ongoing bullish context.

Crude Oil

While the wider market remains driven by geopolitical risks, the US crude oil inventory data for the week ended October 9 also proved supportive.  Although it didn’t fully confirm the 11.0 mmbls drop reported by the American Petroleum Institute, the more definitive DOE data still showed a significant 8.6 mmbls draw as crude oil production slipped, imports fell, and refinery runs increased.  The declined reduced US commercial crude stocks to 415.6 mmbls, the lowest level since July.  Inventories were 8.2 mmbls (1.9%) lower than a year earlier and 11.1 mmbls (2.6%) below their five-year average.  This was the largest year-on-five-year average deficit since July 31, confirming last week’s drop was supportive on a seasonally adjusted basis.

The data for last week included a 1.9 mmbls increase in crude oil stocks at the Cushing, Oklahoma delivery point for WTI futures.  The 26.6 mmbls total as of October 9 was 4.6 mmbls (21%) more than a year ago and 0.9 mmbls (3.5%) above the five-year average.  In contrast, the overall US stock tightness is focused in the Gulf Coast (PADD 3) region.

US crude oil production declined 300,000 bpd in the week ended October 9 according to the DOE, as some output from the Gulf of Mexico was shut in as a precaution ahead of Hurricane Isaias.  Even so, four-week average output of 13.888 mmbpd was still 320,000 bpd (2.4%) higher than a year ago.

In other supplies, US imports of crude oil fell 791,000 bpd last week to 6.049 mmbpd, the lowest level since the week ended September 25.  US exports of crude oil declined 195,000 bpd to 4.570 mmbpd.  Taken together, US net imports of crude oil declined 596,000 bpd on the week to 1.479 mmbpd, the lowest level since the week ended June 26.  WTI has been trading at a deep discount to Brent and this may finally be translating into physical flows that may narrow this differential.

Refinery crude runs increased 135,000 bpd on the week to 16.615 mmbpd, the highest rate since September 19.  Four-week average runs of 16.541 mmbpd were 523,000 bpd (3.3%) more than a year ago, with the increase reflecting an effort to minimize unit downtime at a time of record refinery margins.  In the near term, there may be a secondary cycle of seasonal maintenance, but runs will then ramp back up over the balance of the year, keeping pressure on crude oil inventories.

Looking ahead to the next round of data, we anticipate some rebalancing of the market, but a further 2-4 mmbls draw from US commercial crude stocks for the week ended October 16.  The actual figures will compare with both a 1.0 mmbls decline for the same week of 2025 and a similar 1.1-mmbls five-year average decrease.

Overall, the tightening of the US market has some ongoing potential to lift the WTI futures on an outright basis, strengthen WTI calendar spreads, and narrow the discount to Brent.  In other words, it’s bullish.

Heating Oil (ULSD)

Heating oil futures have rebounded from initial weakness after the G7 announced the release of strategic diesel reserves on October 2 as the market remains tight, at least for now.  With the possibility of at least temporary supply relief, the chart of the nearby November heating oil crack spread has taken on the appearance of a possible distribution top.

The DOE reported a somewhat larger-than-expected 2.5 mmbls drop in US total distillate inventories for the week ended October 9, with stocks hitting 102.6 mmbls for the first time since early June.  Inventories were 14.4 mmbls (12.3%) lower than last year and 15.9 mmbls (13.4%) below the five-year average.  This was the largest year-on-five-year average deficit since September 25, confirming last week’s data as bullish on a seasonally adjusted basis.

Inventories in the East Coast (PADD 1) region surrounding the NY Harbor delivery point for NYMEX ULSD futures were even tighter after last week’s minor 0.2 mmbls decline to 21.5 mmbls left the total 6.2 mmbls (22%) lower than last year and 9.4 mmbls (30%) below their five-year average.  At the same time, this was the smallest year-on-five-year average deficit since August 7, suggesting the tightness has eased on a seasonally adjusted basis.

With the heating oil crack spread margin over WTI crude oil still trading at a near record level of more than $100 per barrel, refineries have a strong incentive to maximize distillate output.  Even after last week’s decline of 101,000 bpd to 5.189 mmbpd, the four-week average of 5.160 mmbpd was 234,000 bpd (4.8%) higher than over the same span of 2025.

The trade flows have been at least a minor offset to the increased refinery output.  US distillate net exports fell 418,000 bpd on the week to 1.228 mmbpd, the lowest weekly rate since June.  Even so, the four week average net exports of 1.374 mmbpd were still 158,000 bpd (13.0%) higher than last year.

Last week’s dip in net exports was more than offset by stronger US offtake.  The DOE reported a 673,000-bpd weekly increase in domestic product shipments to 4.323 mmbpd, the highest rate since March.  Four-week average implied demand of 3.974 mmbpd was 10,000 bpd (0.2%) lower than last year.  Given the $2.514 (68%) year-on-year increase in US average retail diesel cost, we think US demand has been remarkably strong.

US total distillate inventories seem likely to post a further 1-2 mmbls decline for the week ended October 16, a further support for prices on an outright basis.  Such an outcome would be similar to the 1.5 mmbls draw in the same week of 2025 and modestly bearish compared with the larger 3.0-mmbls five-year average drop.

RBOB Gasoline

The US gasoline futures were the weakest element of the wider petroleum complex over the past week after a drop in refinery shipments allowed inventories to build by 3.5 mmbls.  Total US gasoline stocks of 208.3 mmbls were the most since August 14.  Inventories were still 10.6 mmbls (4.8%) lower than last year and 10.2 mmbls (4.7%) below the five-year average.  This was the smallest year-on-five-year average deficit since May 29, implying an easing of tightness on a seasonally adjusted basis.

Refinery production of gasoline remains limited by efforts to maximize diesel production in light of the vastly higher profit margins on that product.  Gasoline output declined 117,000 bpd in the week ended October 9 to 9.232 mmbpd.  Four-week average output of 9.409 mmbpd was 132,000 bpd (1.4%) lower than last year.  This contrasts with the corresponding 3.3% increase in crude runs and the 4.8% increase in distillate output.  Even so, gasoline production was sufficient to outpace apparent demand.

Gasoline trade flows have turned less supportive in recent weeks.  Imports and exports both declined modestly in the latest period, with net exports slipping 35,000 bpd to 284,000 bpd, the lowest level since the week ended August 7.  The four-week average of 368,000 bpd was still 16,000 bpd (4.4%) more than last year but still represents a significant decline from the four-week average of 457,000 bpd as of September 18.

US gasoline shipments have also been easing seasonally but dropped 361,000 bpd in the week ended October 9 to 8.408 mmbpd, the lowest rate since February.  This pulled the four-week average lower to 8.678 mmbpd, a decrease of 35,000 bpd (0.4%) from the same span of 2025.  We continue to view this as a resilient demand performance in the face of sharply higher prices.  It’s also worth noting that the revised monthly demand figures reflecting a more careful accounting have shown greater weakness, with the latest July average of 8.946 mmbpd off 204,000 bpd (2.2%) year on year.

The increase in stocks on weaker export and US demand for last week has translated into pronounced relative weakness in gasoline prices.  The nearby November RBOB gasoline crack spread premium over WTI crude oil that settled for as much as $50.04 per barrel on October 1 fell to just $34.48 at Friday’s close, the lowest valuation since August 24.  From this more conservative valuation we see room for a short-term counter-seasonal recovery, although the broader upside leadership has likely shifted to crude oil.

US Natural Gas

The US natural gas futures continue to see periods of strength followed by bouts of weakness that suggest the broader market is still just marking time ahead of the winter heating season.  Storage levels continue to track higher at a modest pace that is reducing the year-on-five-year average surplus.

For the week ended October 9, the DOE reported 67 bcf in net injections into US working gas in storage, near the bottom of the range of market expectations.  The build was also less than the 90 bcf five-year average increase.  Total storage of 3,567 bcf was 143 bcf (3.9%) less than a year ago but still 45 bcf (1.3%) above the five-year average.  The year-on-five-year average storage surplus has been trending lower for nine consecutive weeks, confirming the market is becoming better supported on a seasonally adjusted basis.

Early estimates for the week ended October 16 are centered around 80 bcf in net injections.  The actual data will compare with an 86 bcf build in storage from last year and a similar 87 bcf five-year average refill.  The end of October also marks the end of the traditional storage injection season, but we note the corresponding peak in five-year average storage has come two weeks later.  We expect the peak in storage to arrive in mid-November at close to the five-year average level.

The larger El Nino pattern favors warmer-then-normal temperatures across the northern US, with associated downside risk for the premium prices of the winter Henry Hub natural gas futures.  In contrast, any early cold snaps will constitute a bullish surprise, generating short covering at the front of the curve.

November futures have little time left to trade, but we see Friday’s $3.062 low tick as a possible pivotal support, a rough match with the extensive consolidation at about that level from September.  Holding there would maintain an opportunity to challenge last week’s $3.334 high or the $3.395 high from September trade as overhead resistance.

With more time to trade, December natural gas could find support in the $3.30 area ahead of the $3.324 low from October 2.  Last week’s high trade of $3.652 established resistance ahead of the $3.709 peak from September 24.  As noted, the higher prices of the winter strip contracts carry some additional risk that a warm start to the winter translates into further price weakness.

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.

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