Evans on Energy Weekly Update-October 30, 2026

Evans on Energy Weekly Update

The Geopolitical Context

Nearby Brent crude oil futures have continued their recent pattern of lighter-volume consolidation or minor correction to start the week, maintaining the potential for renewed gains as the geopolitical risk to oil supplies remains top of mind.  As one related factor, rising tanker and insurance costs have translated into widening differentials between Persian Gulf quotes and delivered locations.

While no decision has been announced, the market is bracing for possible fresh attacks on Iran if joint Israeli-US plans for a three-day campaign following next week’s US mid-term elections.  The objective of the plan is to motivate Iran to return to the negotiating table but it risks hardening resistance instead.  At least in the near term, some attempt by Iran to retaliate seems likely, with tanker traffic through the Strait of Hormuz among the probable targets.

The related conflict between the Iranian-backed Houthi rebels in Yemen and Saudi Arabia also remains active, with missiles launched at Riyadh and the refinery complex at Ras Tanura this week.  Saudi defenses have been effective in this latest cycle, but the range of oil fields, pipelines, refineries and oil terminals is vast and vulnerable.

Russia’s war with Ukraine also remains a supportive background factor, with Ukraine targeting oil refineries and terminals as an effort to both directly undermine the Russian war effort and to put pressure on Russia’s key crude oil and refined product export income.  Despite Ukrainian efforts, Russia has reportedly had recent success in boosting refinery operations in support of stronger exports after US President Trump eased sanctions.

The release of strategic petroleum reserves has helped dampen the impact of the shortfall in current oil production, but the drawdown of strategic and commercial inventories only really spreads the tightness over time.  Rebuilding the stocks depleted this year may take 2-3 years to rebuild and rising forward prices, while lagging the nearby market, are beginning to reflect that.

With Friday’s December Brent expiration, the focus will shift ahead to January futures that have traded at a discount to the nearby price, but may take the December peak trade of $117.43 as a possible near-term objective, reflecting what looks like an ongoing supply/demand deficit.  Technical support basis January is seen gathering in the $107 area.

Crude Oil

The US WTI crude oil futures drew renewed support from the further 1.9 mmbls decline in US commercial crude oil inventories for the week ended October 23 on a jump in exports that may help narrow the arbitrage with the Brent market.  It  was the fourth consecutive weekly decline to 410.6 mmbls, the lowest level since the end of July.  Commercial crude stocks were also 5.3 mmbls (1.3%) lower than a year ago and 17.5 mmbls (4.1%) below the five-year average.  This was also the largest year-on-five-year average deficit since the end of July, reinforcing the extent to which the data was supportive on a seasonally adjusted basis.

Inventories remained relatively comfortable at the Cushing, Oklahoma delivery point for WTI futures after a 0.6 mmbls draw to 27.0 mmbls.  At that level, Cushing stocks were still 4.4 mmbls (19.5%) higher than a year ago and 2.7 mmmbls (11.1%) above their five-year average.

The data for last week included the latest 0.1 mmbls transfer out of the Strategic Petroleum Reserve to 282.6 mmbls, the lowest level since 1982.  The SPR is also now 132.9 mmbls (32%) below its recent March 2026 peak.  SPR levels are approaching levels some consider an operational minimum, with further draws possibly weakening the structure of the salt domes used to store much of the oil.  At the very minimum, we see it resulting in reduced flexibility and the overall rate at which oil can be released.

After the prior dip in US crude oil production related to Tropical Storm Isaias, output rebounded sharply by 723,000 bpd to a minor new high of 13.992 mmbpd, the DOE estimate showed.  This helped sustain four-week average output of 13.730 mmbpd that was 95,000 bpd (0.7%) more than last year.

In other supplies, US crude oil imports rose 616,000 bpd on the week to 6.374 mmbpd.  Four-week average imports of 6.255 mmbpd were 531,000 bpd (9.3%) more than last year.  Exports rose even more last week, jumping 1.412 mmbpd on the week to 4.854 mmbpd.  Four-week average exports of 4.408 mmbpd were 253,000 bpd (6.1%) more than a year earlier.  Taken together, US net imports fell 796,000 bpd on the week to 1.520 mmbpd, even as the four-week average of 1.848 mmbpd was up 278,000 bpd (17.7%) from the same span of 2025.

The increase in US crude oil production and net imports have helped support ongoing strong refinery runs in response to record margins.  Refinery crude runs declined 123,000 bpd to 16.526 mmbpd in the week ended October 23, but the four-week average of 16.568 mmbpd was 974,000 bpd (6.2%) higher than last year.  The refinery operating rate is the product of both these crude runs and the DOE estimate of operating capacity, but a recent DOE Today in Energy review of the May-September period noted the 2026 average of more than 95% was the highest since 1998.

While the seasonal pattern in refinery runs often includes a later secondary cycle of unit outages we’re seeing little evidence of that this year.  The larger pattern typically features rising runs over the course of November and December.  Strong runs seem likely to keep pressure on US commercial crude stocks and we’re penciling in a further 1-3 mmbls decline for the week ending October 30.  The actual data will compare with both a 5.2-mmbls build in the same week of 2025 and the more typical 1.3-mmbls five-year average draw.

Declining US commercial crude oil inventories have the potential to lift December WTI crude oil futures to narrow the arbitrage discount to the Brent market.  The draws also support a strengthening backwardation in calendar spreads and higher outright prices.

Heating Oil (ULSD)

The DOE reported a 1.5 mmbls draw from US total distillate inventories for the week ended October 23, a supportive retracement after the 1.7 mmbls build in the prior week.  The new total of 102.8 mmbls was 9.4 mmbls (8.3%) lower than last year and 11.7 mmbls (10.2%) below the five-year average.  The fresh expansion of the year-on-five-year average deficit underscores the degree to which last week’s draw was supportive on a seasonally adjusted basis.

While the overall data was supportive, the figures included a 0.8 mmbls build in the East Coast (PADD 1) region surrounding the NY Harbor delivery point for ULSD futures.  At 21.8 mmbls, East Coast stocks were still 3.6 mmbls (14.3%) lower than last year and 7.9 mmbls (26.5%) below the five-year average.  East Coast stocks remain tight, but this was the smallest year-on-five-year average deficit since August 7, marking an easing of tightness on a seasonally adjusted basis.

Record refining margins have motivated a strong production effort.  Distillate output declined 71,000 bpd last week to 5.161 mmbpd, but the four-week average of 5.218 mmbpd were 495,000 bpd (10.5%) higher than last year.

With international distillate supplies also tight, US trade flows have been a partial offset to the higher refiner output.  Imports increased 40,000 bpd in the week ended October 23 to 157,000 bpd and exports declined 59,000 bpd to 1.320 mmbpd.  The result was a 99,000-bpd decline in US net exports on the week to 1.163 mmbpd.  Even so, four-week average net exports of 1.325 mmbpd were still 197,000 bpd (17.4%) higher than a year ago.  This growth in net exports is likely to remain a support for the US market over the intermediate term.

US distillate shipments increased 475,000 bpd last week to 4.207 mmbpd, reversing much of the prior week’s drop.  Four-week average implied demand of 3.978 mmbpd was 24,000 bpd (0.6%) lower than last year, suggesting only a limited weakening in the face of sharply higher prices.

Looking ahead to the next round of data, we think US total distillate inventories may be little changed for the week ending October 30.  The actual data will compare with a 0.6 mmbls draw in the same week of 2025 and a 0.5 mmbls five-year average decrease.

The December edition of the heating oil crack spread premium over WTI crude oil futures have weakened marginally and may have topped.  At the same time, outright prices may continue to track somewhat higher on the back of crude oil.

RBOB Gasoline

The DOE reported an unexpected 3.9 mmbls build in US total gasoline inventories for the week ended October 3 as US product shipments fell sharply on the week.  The gain lifted total gasoline inventories to 209.2 mmbls, the highest level since August 14.  Gasoline stocks were still 1.6 mmbls (0.7%) lower than last year and 6.3 mmbls (2.9%) below the five-year average, but this was the smallest deficit since April.

The data for last week included a 2.3 mmbls increase in the East Coast (PADD 1) region surrounding the NY Harbor delivery point for RBOB futures.  At 53.9 mmbls, East Coast gasoline inventories were the most since July 10, 0.4 mmbls (0.8%) higher than a year ago and just 0.7 mmbls (1.3%) below the five-year average.  This was the smallest year-on-five-year average deficit for the region since the end of May.

Last week’s stock build came even as the DOE reported a 509,000-bpd decline in refinery gasoline production to 9.241 mmbpd that reversed almost all the prior week’s gain.  Four-week average output of 9.393 mmbpd was 181,000 bpd (1.9%) lower than a year ago.  This contrasts dramatically from the corresponding 6.2% increase in refinery crude runs and the 10.5% jump in distillate output, illustrating the extent to which refiners were able boost distillate yields in response to the higher margins for that product.

A decline in US gasoline net exports contributed to last week’s stock build, as imports increased 118,000 bpd to 399,000 bpd and exports decline 81,000 bpd to 845,000 bpd.  Taken together, the 199,000-bpd drop in net exports to 446,000 bpd was a reduction in support for the US market.  Four-week average gasoline net exports of 424,000 bpd were also soft, off 40,000 bpd (8.6%) from the same period of 2025.

US refinery shipments of gasoline fell 624,000 bpd last week to 8.358 mmbpd, the lowest level since February.  While some degree of seasonal weakness is not unexpected, the sudden drop was a surprise.  Four-week average shipments implied demand of 8.629 mmbpd, a minor 59,000-bpd (0.7%) decrease from a year ago.  This only represents a first take on gasoline demand, but it suggests only a marginal weakening in the face of sharply higher prices.

While we anticipate some recovery in US gasoline shipments that may bring the market back into a closer balance for the week ending October 30, this might leave total gasoline inventories little changed.  Such an outcome would still look bearish compared with both the 4.7-mmbls drop from a year earlier and the 2.3-mmbls five-year average decrease.

The December edition of the RBOB crack spread premium over WTI crude oil has already registered a sharp decline from the $42.42 level peak settlement from October 1 to recent trade just over $28 per barrel.  This decline sets up the potential for some consolidation or an upward correction.  At the same time, the seasonal trends favor soft demand and rising inventories that will limit the upside and may drive further weakness over the intermediate term.

US Natural Gas

The US natural gas futures are showing some early signs of stabilization after a weak performance in the expiring November contract pulled the forward contracts to fresh lows.  A moderate temperature outlook consistent with robust further storage injections has weakened fundamental support.

The DOE reported 80 bcf in net injections into US working gas in storage for the week ended October 23, outpacing expectations for a more moderate 70-71 bcf increase.  The build for last week was also more than the 75 bcf refill from a year ago and the 77 bcf five-year average gain.  Total storage of 3,724 bcf was 147 bcf (3.8%) less than last year and 38 bcf (1.0%) above the five-year average.  The slight uptick in the year-on-five-year average surplus ended a 10-week series of declines.

One moderately bearish storage surprise should not be taken as conclusive but does raise questions regarding the apparent weakening of the background supply/demand balance.  Moderate seasonal temperatures may have contributed to some combination of softer southern cooling demand and weaker northern heating requirements.  Rising supply may have also been a factor, with natural gas producers ramping output higher.

The consensus on how storage refills may evolve going forward is still very much in flux.  However, we see the potential for perhaps 75 bcf in net injections for the week ending October 30 and 70 bcf in the week ending November 6.  These figures would outpace the corresponding five-year average builds of 61 bcf and 40 bcf, further expanding the year-on-five-year average surplus.

The larger storage refills also suggest the injection season may be extended beyond that horizon to November 13 or even November 20.  This would also point to an expansion of the surplus, since the five-year average storage peak has been November 6.

The bearish storage surprise also prompted a fresh downturn in December natural gas futures, setting back the clock on building even a short-term base of support for an upward correction.  Wednesday’s high trade of $3.092 takes on fresh importance as pivotal resistance, while the Thursday session low of $2.897 is not yet established as even interim support.

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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