Evans on Energy Weekly Update-October 5, 2026

Evans on Energy Weekly Update

The Geopolitical Context

Crude oil prices remain supported by a broad range of geopolitical risks with ongoing conflicts between the US and Iran, Saudi Arabia and Yemen, Ukraine and Russia.

At the same time, overall supplies and oil shipments through the Strait of Hormuz have been recovering with recent reports that 12 mmbpd or more is flowing again, despite the occasional Iranian attack.  In fact, Kpler estimates September shipments at 16.5 mmbpd, which they observe is a match with the pre-war rate if we don’t count Iranian shipments.

While the highest level in months, shipments remain a step below the 18-19 mmbpd that shipped through the strait prior to the start of the US war with Iran.  With more oil also moving again via Saudi Arabia’s East-West Pipeline, the overall global supply/demand deficit may be more like 3-4 mmbpd.

Since March, the global market has been cushioned from the drop in supply by the release of strategic reserves, with the International Energy Agency coordinating an initial release of 400 mmbls.  On Friday, the Group of 7 (Canada, France, Germany, Italy, Japan, and the US) announced the release of additonal 100 mmbls over the next four months, with European diesel reserves expected to make up as much as half of the total.

As noted in some of our prior analysis, the release of strategic reserves adds to supply in the near term, but also creates forward demand to replenish inventories once the crisis has passed.  Normally stocks are replenished at about half the rate they’ve been released, suggesting increased demand in 2027-2028. 

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 are being left unchanged for October, but with output constrained by war these nominal targets are less relevant to forecasting the arc of actual production.

Crude Oil

While the wider market remains driven by geopolitical risks, the US inventory data continues to track along typical seasonal factors, with scheduled refinery maintenance allowing crude stocks to build and refined products to draw in the week ended September 25.

Refinery crude runs declined 554,000 bpd last week to 16.257 mmbpd, the lowest weekly rate since the beginning of May.  Even so, four-week average runs of 16.996 mmbpd were still 525,000 bpd (3.2%) higher than a year ago, reflecting an effort to defer maintenance where possible in the face of what have been record crack spread margins.  Refinery runs may slip further in the near term, but we’d look for the four-week average to stabilize in the 16.0-16.2 mmbpd range as some refinery units are able to restart, even as others go offline.

The lower refinery runs along with a further 0.8 mmbls draw from the SPR allowed DOE commercial crude oil inventories to increase 0.9 mmbls on the week to 427.3 mmbls, the highest level since August 21.  Crude oil inventories were 10.8 mmbls (2.6%) higher than a year ago and 8.7 mmbls (2.1%) above the five-year average.  This was the largest year-on-five-year average surplus since April and does confirm the US market is better stocked on a seasonally adjusted basis.

The crude oil stock data included a 0.6 mmbls gain at the Cushing, Oklahoma delivery point for NYMEX WTI futures.  The new total of 24.3 mmbls was the highest since May 15, 0.8 mmbls (3.6%) more than a year ago, but still 1.3 mmbls (5.2%) below the five-year average.

In addition to the role that seasonal refinery maintenance has played in balancing the US market, we note that four-week average domestic crude oil production of 13.946 mmbpd was 451,000 bpd (3.3%) higher year-on-year.  US crude oil net imports have also rebounded from earlier in the year, with the four-week average of 2.590 mmbpd up 581,000 bpd (29%) over the same span of 2025.

Since the refinery maintnenance cycle may haver further to run, we see potential for a further 1-2 mmbls build in US commercial crude oil inventories for the week ended October 2.  This could translate into further weakness in the WTI calendar spread structure and widen the discount to Brent crude oil.  But we also see this as translating into a buying opportunity supported by a rebound in refinery rates once scheduled maintenance is completed.

In contrast with the Brent market, the US cycle of refinery maintenance and the rising US commercial crude stocks, are weakening the WTI calendar spread and widening the discount to Brent.  This relative weakness in WTI may have a few more weeks to run, but should result in a buying opportunity.

Heating Oil (ULSD)

Heating oil futures reached record valuations on the back of ongoing refinery outages in the Persian Gulf and Russia that have translated into tight inventories in the international market, as well as in the US.  However, Friday’s announced G7 plan to release up to 50 mmbls in European diesel reserves will undercut that support.  The plan takes a ban on US exports off the table.

The DOE reported a somewhat larger-than-expected 2.3 mmbls draw from US total distillate inventories for the week ended September 25, with the total of 105.2 mmbls the lowest since August 28.  Distillate inventories were 18.4 mmbls (14.9%) lower than a year ago and 16.8 mmbls (13.8%) below the five-year average.  This was the market’s largest year-on-five-year average deficit since August 21, confirming a recent tightening on a seasonally adjusted basis.

Much of the US tightness is focused in the East Coast (PADD 1) region surrounding the NY Harbor delivery point for ULSD futures, where last week’s 0.3 mmbls draw to 21.9 mmbls left inventories 8.8 mmbls (29%) lower than last year and 10.4 mmbls (32%) below the five-year average.  These tight stocks leave the market vulnerable to a renewed squeeze.

The current cycle of US refinery maintenance is limiting supply, but four-week average output of 5.184 mmbpd was 153,000 bpd (3.0%) more than a year ago, reflecting at least some response to record margins.  At the same time, we note that demand is also holding up will even at the higher price level, with US net exports averaging 1.373 mmbpd over the past four weeks, an increase of 203,000 bpd (17.4%) from a year ago.  US product shipments declined just 27,000 bpd last week to 3.948 mmbpd, helping sustain four-week average implied demand of 3.776 mmbpd that was 187,000 bpd (5.2%) more than last year.  The comparison with a weak period in 2025 may be exaggerating the strength, but it seems clear that demand is not collapsing in the face of record prices.

With refiners still in the midst of a scheduled maintenance cycle, we wouldn’t rule out a further 1-2 mmbls draw from US total distillate stocks for the week ended October 2.  The actual data will compare with a 2.0 mmbls drop in the same week of 2025 and a 1.2-mmbls five-year average decrease.

November heating oil futures that settled for as much as $112.50 per barrel over WTI on September 16 have likely topped out for now.  We see potential support in the $75-80 per barrel range.  Failed resistance in the $65 area could also potentially come back into play.  Overall, we’d suggest cashing out of heating oil long positions or even trading from the short side.

RBOB Gasoline

The US gasoline futures market got a fresh boost this week after the DOE reported a robust 1.7 mmbls draw from US total gasoline inventories for the week ended September 25.  The decline to 204.4 mmbls leaves gasoline stocks at their lowest level since 2014, down 16.3 mmbls (7.4%) from a year ago and 13.9 mmbls (6.4%) below their five-year average.  This was the largest year-on-five-year average deficit since August 28, confirming a recent tightening on a seasonally adjusted basis.

Gasoline inventories in the key East Coast (PADD 1) region surrounding the NY Harbor delivery point for RBOB futures were little changed on the week at 50.9 mmbls but remained tighter than the US average.  East Coast stocks were 5.2 mmbls (9.2%) lower than last year and 5.3 mmbls (9.4%) below the five-year average.

With heating oil crack spreads more than double the gasoline rates, refiners have been working to maximize distillate output.  Gasoline output declined 124,000 bpd last week to 9.466 mmbpd, while the four-week average of 9.502 mmbpd was 9,000 bpd (0.1%) lower than a year ago.

The flat refinery production is a near match with apparent demand that is also little changed from a year ago.  Gasoline product shipments declined 158,000 bpd in the week ended September 25 to 8.689 mmbpd, while four-week implied demand of 9.721 mmbpd was just 23,000 bpd (0.3%) more than last year.  At the margin, the US gasoline market is being supported by trade flows, with four-week average net exports of 424,000 bpd that were 84,000 bpd (25%) higher year-over-year.

Looking ahead to the next round of data, we see potential for a 0.5-1.5 mmbls recovery in US total gasoline inventories.  The actual data will compare with a 1.6 mmbls draw in the same week of 2025 but could still look supportive compared to the 2.1-mmbls five-year average gain.

November RBOB gasoline made a new high against WTI crude oil on Thursday at $50.04 per barrel and may continue to outperform as there are no strategic reserves to be released and refinery output will be limited by both the current cycle of seasonal maintenance and the greater incentive to maximize distillate production.  Gasoline may also draw some support from a market rotation away from heating oil.

US Natural Gas

The US natural gas market turned lower again over the past week, with nearby November futures failing to sustain the push to $3.317, their highest level since July, falling back beneath the $3.00 mark.

Natural gas remains supported fundamentally by seasonal injections running below their five-year average rates, with the 64 bcf build to 3,415 bcf for the week ended September 25, leaving the total just 79 bcf (2.4%) above the five-year average cushion.  This was the seventh consecutive weekly decline in the surplus to its lowest level since early April.

Early estimates for the week ended October 2 point to 80-85 bcf in net injections, still less than the 96 bcf five-year average for the date.  We also expect this trend to continue in coming weeks, with storage ending the injection season close to the five-year average level.  We also note that while the end of October marks the traditional end to the injection season, the five-year average peak in storage has been the second week of November.

The nearby November natural gas futures have left behind the $3.395 peak from September 24 as overhead resistance.  We anticipate initial selling in the $3.20 area ahead of the recent extreme.  A break of past support at $2.90 would likely produce limited follow-through in our estimation, setting up a possible buying opportunity.

The deferred contracts such as January have already posted new lows.  For that contract we’d look for a recovery above $3.85 to signal a fresh run at the $4.071 high from September 24.

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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