Evans on Energy Weekly Update-October 7, 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.

We continue to see assessments of the recovery in global crude oil production and shipments through the Strait of Hormuz for September.  For example, the DOE Short-Term Energy Outlook estimated a 0.89 mmbpd global increase in production for the month to 101.3 mmbpd.  At the same time, they estimated global consumption at 104.2 mmbpd, implying a supply/demand deficit for the month of 2.9 mmbpd.  Of course all of these estimates are subject to later revision.  Later monthly assessments from the International Energy Agency and OPEC can also paint a different picture.

The International Energy Agency is also coordinating the announced release of 100 mmbls in crude oil and diesel reserves announced October 2 by the G7, with more details expected to follow.

Saudi Aramco officials have warned of low stock levels, including that it could take two years to replace the strategic stocks released this year.  This is in line with our own experience, but the large volumes in the current cycle mean that two years could easily stretch to three, adding to demand over the 2027-2029 period.

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.

Crude Oil

While the wider market remains driven by geopolitical risks, the US inventory included a few suprises for the week ended October 2.  In place of the expected seasonal build in crude stocks, the DOE reported a 3.2 mmbls draw as refinery runs rebounded 223,000 bpd on the week to 16.480 mmbpd and net imports declined to their lowest level since July.  At 424.1 mmbls, US commercial crude stocks remain comfortable, about 4.6 mmbls (1.1%) above their five-year average.

The uptick in refinery runs suggests at least the first wave of scheduled maintenance has peaked, but there may still be some additional work that could limit crude oil consumption over the next few weeks.  This might translate into a 2-4 mmbls build in crude stocks for the week ended October 9.  The actual data will compare with a 3.5 mmbls build in 2025 and a larger 7.1-mmbls five-year average gain.

The draw from crude stocks for last week along with the bounce in refinery runs gives WTI futures a chance to firm, reversing what has been a weakening WTI calendar spread structure and a widening discount to Brent.

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.

The DOE reported that US total distillate inventories (heating oil plus diesel fuel) were little changed at 105.1 mmbls as of October 2.  This was modestly bearish versus the seasonal tendency for a further decline.  The US total was still 15.7 mmbls (13.0%) below the five-year average, but this was the smallest deficit since September 18.

The data included a 0.2 mmbls draw to 21.7 mmbls in the East Coast (PADD 1) stocks more closely associated with the New York Harbor delivery point for ULSD futures.  East Coast stocks were still 10.1 mmbls (31.7%) below their five-year average, although this was the smallest deficit since August 14.

Shipments of distillate declined 298,000 bpd on the week to 3.650 mmbpd and the new four-week average implied demand of 3.769 mmbpd, a decrease of 0.62 mmbpd (1.6%) from a year earlier.  Overall, demand remains resilient in the face of record high prices, yet to collapse in any more meaningful way.

High prices are also a motivation for refiners to minimize seasonal maintenance work, but inventories remain at risk for a further decline.  For the week ended October 9 we see potential for a 1-2 mmbls draw.  The actual data will compare with a larger 4.5 mmbls drop in the same week of 2025 as well as a 2.4-mmbls five-year average decrease.

November heating oil futures have rebounded back toward the $112.50 per barrel crack spread premium over WTI crude oil from September 16.  This could still be considered part of a larger topping process, but it definitely postpones any deeper correction.

RBOB Gasoline

The US gasoline futures continue to strengthen as the product lacks the same kind of strategic reserves that may improve distillate supply in the weeks ahead.  Gasoline may have gotten a further lift from a smaller than expected 0.4 mmbls build in DOE total inventories for the week ended October 2.  The 204.7 mmbls on hand were 15.5 mmbls (7.1%) less than the five-year average, the largest such deficit since July.

The data for last week also included a larger 2.8 mmbls build in the East Coast (PADD 1) region surrounding the NY Harbor delivery point for RBOB futures.  This increase to 53.7 mmbls left East Coast gasoline stocks still 4.0 mmbls (6.9%) below their five-year average, but this was the smallest deficit since September 4, an easing of tightness on a seasonally adjusted basis.

US refinery shipments of gasoline ticked higher by 80,000 bpd to 8.769 mmbpd last week, helping sustain a similar four-week average of 8.776 mmbpd that was just 26,000 bpd (0.3%) lower than last year.  As with the distillate market, gasoline implied demand looks to be holding steady in the face of high prices.

Looking ahead to the next round of data, we see potential for a 0.5-1.5 mmbls draw from US total gasoline stocks for the week ended October 9.  The figures will compare with inventories that declined 0.3 mmbls in the same week of 2025 and fell 1.8 mmbls on average over the past five years.

November RBOB gasoline made a new high against WTI crude oil on October 1 at $50.04 per barrel and continues to trade within reach of that level.    Even at that level, gasoline may be drawing some support at a bargain compared with the price of diesel fuel.

US Natural Gas

The US natural gas market has turned higher again this week having survived a bit of a downward correction that may have only served to have confirmed buying interest just below the $3.00 mark basis nearby futures.  Deferred contracts such as January are snapping higher from the new lows reached October 2 with declining momentum that suggested the exhaustion of their downtrend phase.

Natural gas remains supported fundamentally by seasonal injections running below their five-year average rates over the past seven weeks.  After the 64 bcf build for the week ended September 25, storage of 3,415 bcf was just 79 bcf (2.4%) above the five-year average cushion.

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.

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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