Evans on Energy Weekly Update-October 24, 2026

Evans on Energy Weekly Update

The Geopolitical Context

Nearby Brent crude oil futures climbed to their highest level since April this week on the back of increased geopolitical risk to global oil supplies.  After only some minor consolidation, December Brent cleared prior technical resistance at $110 decisively with Friday’s advance of $3.55 per barrel (3.1%) to settle at $116.72 with one week left to trade.

The US and Israel reportedly have specific military plans for a three-day campaign of attacks on Iran targeting oil infrastructure and nuclear facilities.  No decision to move forward has been made but it poses a specific threat of escalation that could take place soon after the US midterm elections on November 3.  The attacks would be intended to bring Iran back to the negotiating table but risk further hardening Iranian resistance.

The proposed attacks could also be seen as retaliation for recent Iranian efforts to assert control over tanker traffic via the Strait of Hormuz after a number of vessels struck mines in the waterway.  The flow of oil through the strait that averaged some 16 mmbpd during September reportedly dropped to about half that level before rebounding.  Tanker rates and insurance costs continue to rise, also contributing to the higher price of delivered crude oil.

The market is also expressing concern over the escalating conflict between Saudi Arabia and the Iranian-backed Houthi rebels who control much of Yemen.  Saudi attacks on the Houthis have attracted limited attention, but Houthi missle and drone attacks on the Riyadh airport, Saudi Aramco headquarters, and one of the smaller Saudi oil fields have the oil market’s attention.

The ongoing war between Russia and Ukraine is a further support for oil prices, as Ukraine’s most effective gambit to pressure Russia remains drone attacks against oil terminals and refineries.  US pleas for a mutual cease-fire on attacks against energy infrastructure have gone unanswered.  The US deal to buy Russian diesel fuel has been challenged by US politicians as a breach of US sanctions legislation and it’s not clear Russia has the production to drive exports in the face of Ukrainian attacks.

The International Energy Agency review of the G7 plan to release an additional 100 mmbls of strategic oil reserves confirmed that 20 mmbls of diesel will be included.  However, the pace of delivery will be limited and likely insufficient to tip the balance in the market even in the short run.

As we’ve noted in the past, the reliance on the release of strategic reserves adds to supply in the near term, but also contributes to future demand as those stocks are replenished.  In effect, this spreads some of the impact of the current supply crisis over the intermediate term.  Stock releases of some 500 mmbls this year could be followed increased demand over perhaps the next three years as stockpiles are gradually replenished.

Crude Oil

Trade in WTI crude oil over the past week included at least a passing squeeze in November futures a day ahead of the contract expiration that we see reflecting the ongoing discount to the Brent market as a driver of US exports and declining US commercial crude stocks as refinery runs ramp higher after scheduled maintenance.  In our view, this also suggests the forward WTI price may be undervalued, at least relative to Brent.

The DOE reported a constructive 3.1 mmbls draw from US commercial crude stocks for the week ended October 16 that matched our estimate for a 2-4 mmbls decline.  The new total of 412.5 mmbls was the lowest since July 31.  Inventories were 10.3 mmbls (2.4%) lower than a year ago and 13.1 mmbls (3.1%) below the five-year average.  This was the largest year-on-five-year average deficit since July 31, confirming the market has become at least somewhat tighter on a seasonally adjusted basis.

Although total US inventories declined on the week, the Cushing, Oklahoma delivery point for WTI futures saw a 1.0 mmbls build to 27.6 mmbls, the highest tally since May 1.  This put Cushing stocks 6.4 mmbls (30%) higher than a year ago and 2.5 mmbls (9.9%) above their five-year average.  So while total inventories are tighter, Cushing stocks look comfortable.

The data for last week included a renewed 0.3 mmbls draw from the Strategic Petroleum Reserve, with the remaining 282.7 mmbls stockpile the lowest since 1984.  The SPR is also now down 132.8 mmbls (32%) from its March peak, a flow that helped sustain commercial crude stocks at a relatively comfortable level.

US crude oil production declined 410,000 bpd in the week ended October 16 to 13.269 mmbpd, the lowest rate since January.  The decline likely reflected the impact of Tropical Storm Isaias on output from the Gulf of Mexico.  Even so, four-week average production of 13.599 mmbpd was still 180,000 bpd (1.3%) more than a year ago.  Output is likely to return to the recent pre-storm peak of 13.979 mmbpd in the weeks ahead.

Trade flows for last week showed a bearish swing from the prior period.  Imports declined 291,000 bpd to 5.758 mmbpd but exports fell 1.128 mmbpd to 3.442 mmbpd, the lowest rate since the week of September 18.  Taken together, US nt imports increased 837,000 bpd on the period to 2.316 mmbpd.  Four-week average net imports of 2.000 mmbpd were 82,000 bpd (4.3%) more than a year earlier.

On the demand side of the crude oil equation, refinery crude runs increased 34,000 bpd on the week to 16.649 mmbpd, the most since September 18.  The gain marked a further recovery from what was a short cycle of scheduled maintenance in response to what have been record refinery margins.  Four-week average runs of 16.500 mmbpd were 669,000 bpd (4.2%) higher than last year.  There can sometimes be a secondary cycle of maintenance within the turnaround season, but runs will be trending higher seasonally in November and December.

Looking ahead to the next round of data, we think a minor decline in crude oil net imports could be offset by a downtick in refinery runs for the week ended October 23, resulting in a similar 2-4 mmbls draw from US commercial crude oil inventories.  The actual data will compare with both a larger 6.9 mmbls drop in the same week of 2025 and a 2.5 mmbls five-year average seasonal build.

After an initial strengthening in the arbitrage with Brent futures and in the WTI calendar spread structure, we’re seeing minor retracements that could represent technical consolidation.  The significant discount to Brent, declining US inventories, and seasonally rising refinery runs all represent background supports.

Heating Oil (ULSD)

The DOE reported an unexpected 1.7 mmbls build in US total distillate inventories (heating oil plus diesel fuel) for the week ended October 16 as refinery shipments fell more than expected from their highest level since March.  Total stocks of 104.3 mmbls were still 11.3 mmbls (9.7%) lower than last year and 11.2 mmbls (9.7%) below the five-year average, but these were smaller deficits than the week before.  In fact, the year-on-five-year average deficit was the smallest since July, confirming an easing of tightness on a seasonally adjusted basis.

In contrast with the build in US total distillate inventories, stocks in the East Coast (PADD 1) region surrounding the NY Harbor delivery point for ULSD futures declined 0.5 mmbls on the week to 21.0 mmbls, the lowest level since August 28.  East Coast stocks were 5.8 mmbls (21.7%) lower than last year and 9.2 mmbls (30.5%) below the five-year average.  These were both slightly smaller deficits than in the prior week and so still constitute a slight easing.

US refinery production of distillate increased 43,000 bpd on the week to 5.232 mmbpd.  This pulled the four-week average output up to 5.179 mmbpd, an increase of 341,000 bpd (7.0%) from a year earlier that reflects a strong response to record profit margins.  The increase also outpaces the corresponding 4.2% year-on-year gain in crude runs, showing the extent to which margins also influenced product yields.

On the demand side of the equation, an increase in net exports to supply an even tighter international market have also supported domestic valuations.  Imports declined 28,000 bpd last week to 117,000 bpd, while exports edged 6,000 bpd higher to 1.379 mmbpd.  Thus, net exports walked 34,000 bpd higher to 1.262 mmbpd.  Over the past four weeks net exports of distillate averaging 1.378 mmbpd were 285,000 bpd (26%) higher than a year earlier.

US distillate offtake fell 591,000 bpd last week to 3.732 mmbpd, reversing much of the prior week’s surge.  Four-week average domestic shipments of 3.913 mmbpd implied demand that was 98,000 bpd (2.4%) less than a year ago.  This was the weakest year-on-year performance since the week ended September 11.  The overall numbers suggest some moderation in consumption in response to sharply higher prices, but not a collapse in demand.

Looking ahead to the next round of data, we see potential for a rebound in US distillate shipments to tip stocks back to a minor 0.5-1.5 mmbls draw for the week ended October 23.  The actual data will compare with both a larger 3.4 mmbls drop in the same week of 2025 and a 0.9-mmbls five-year average decrease.

Overall, while we see ongoing tightness in the US distillate market, this has largely already been discounted into what has been a record crack spread margin over WTI crude oil.  We therefore see risk of some relative weakness, with rising refinery runs suggesting both increased support for crude oil and additional production of ULSD.

RBOB Gasoline

The US RBOB (reformulated blendstock for oxygenate blending) gasoline futures continue to display weakness relative to the upstream WTI crude oil price, even after a robust 3.0 mmbls draw from US total gasoline inventories for the week ended October 16 that largely reversed the prior 3.5 mmbls gain.  Total US gasoline inventories of 205.3 mmbls were 11.4 mmbls (5.2%) lower than last year and 11.1 mmbls (5.1%) below the five-year average.  These were both larger deficits than the week before, suggesting increased support for prices on a seasonally adjusted basis.

The data for last week included a 1.9 mmbls draw from the East Coast (PADD 1) regions surrounding the NY Harbor delivery point.  Regional inventories declined to 51.6 mmbls, the lowest since September 25.  East Coast gasoline stocks were 3.7 mmbls (6.7%) less than a year ago and 4.5 mmbls (8.0%) below their five-year average, both wider deficits than in the prior period.

Despite the supportive stock comparisons, market sentiment may have weakened on the reported 518,000 bpd weekly increase in refinery output to 9.750 mmbpd, the highest rate since the week ended August 28.  This recovery after a relatively short cycle of scheduled refinery maintenance still left the four-week average of 9.449 mmbpd, off 63,000 bpd (0.7%) from the same span of 2025.  Gasoline output lags both the corresponding 4.2% increase in four-week average crude runs and the 7.0% jump in distillate output, illustrating the refinery response to high prices has centered on supplying ULSD.

Trade flows contributed to last week’s draw from gasoline inventories, with imports falling 227,000 bpd on the week to 281,000 bpd.  Exports increased 134,000 bpd to 926,000 bpd.  Taken together, US net exports of gasoline increased 361,000 bpd from the prior week to 645,000 bpd, the most since May.  In contrast, four-week average net exports of 420,000 bpd were 11,000 bpd (2.4%) less than last year.

Stronger US offtake also helped draw down inventories, with refinery shipments jumping 574,000 bpd from the prior period to 8.982 mmbpd, the most since August 21.  This helped walk the four-week average implied demand up to 8.712 mmbpd, an increase of 126,000 bpd (1.5%) from a year earlier.

The increase in net exports and US product shipments that pulled gasoline inventories lower in the week ended October 16 may not fully carry over into the next round of figures, but we see potential for a further 0.5-1.5 mmbls draw.  The data for the week ended October 23 will compare with a 5.9 mmbls drop in the same week of 2025 as well as a 0.9-mmbls five-year average decrease.

Although gasoline inventories may tick lower in the near term, we expect market confidence in reliable seasonal trends to dominate sentiment.  Rising refinery output and limited demand typically translate into rising stock levels from a November low to a late January or early February peak.  Gasoline may be entitled to an upward correction along the way but may have difficulty sustaining rallies.

US Natural Gas

The US natural gas futures have fallen to their lowest level since August as a moderate temperature outlook points to some above-average storage refills that may extend the injection season into the third week of November.

The DOE reported 77 bcf in net injections into US working gas in storage for the week ended October 16 that was slightly less than early expectations.  The build was also supportive compared with either the 86 bcf refill from last year and the 87-bcf five-year average gain.  Total storage of 3,644 bcf was 152 bcf (4.0%) less than a year earlier and 35 bcf (1.0%) above the five-year average for the date.

The next report for the week ended October 23 also looks at least nominally supportive on a seasonally adjusted basis, with early expectations pointing to 70-71 bcf in net injections.  The actual data will compare with 75 bcf from a year earlier and a 77 bcf five-year average gain.  And so, we anticipate an eleventh consecutive decline in the year-on-five-year average surplus but, given the latest weather forecast, that looks to be the end of the series.

Net injections marginally above the five-year average seem likely over the next few weeks, helping to expand the residual surplus.  There’s also the chance this carries over into the third week of November with any increase to the storage total at that point contrasting with a 24-bcf five-year average draw.

The further injections will pad the year-on-five-year average surplus, but they also begin to shorten the withdrawal season.  The impact of the added cushion and shorter season can be quickly reversed with an early winter cold snap, but with longer-term forecasts tied to El Nino pointing to warmer-than-normal readings across the northern US, there’s low confidence in an early freeze scenario.

November futures dropped to $2.64 on Friday, testing a level nearby natural gas futures last tested in August.  The December contract followed with a break below the lower boundary of its declining price channel to a $3.026 low and would need a daily reversal above $3.162 just to stabilize.  We see additional technical resistance in the $3.30-3.40 range basis December futures.

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.

[email protected]