Evans on Energy Weekly Update-September 6, 2026

The Geopolitical Context

Petroleum supplies remain under pressure worldwide, with crude oil output running 5-7 mmbls lower than normal as the Strait of Hormuz remains shut due to the US war with Iran.  Saudi Arabian tanker shipments are being rerouted through the Suez Canal due to the threats from Iranian-backed Houthi rebels based in Yemen.  Global refinery output is running 10 mmbls lower than normal due to outages around the Persian Gulf and Ukrainian drone attacks on Russian refineries.  Geopolitical risk remains the number one fundamental story for 2026 and the latest cycle of US military attacks against Iranian targets have helped lift nearby crude oil prices to six-week highs.

The renewed military attacks followed the expiration of the 60-day memorandum of understanding (MoU) that was to have provided a window for negotiating a lasting, more comprehensive agreement.  Diplomats now say Iran is willing to consider a return to the MoU conditions, but the US is adding demands for a permanent deal that includes limits on Iran’s nuclear program.  The Iranian regime is digging in its heels, resulting in a stalemate likely to include further military attacks to contest control of shipping through the Strait of Hormuz. 

OPEC Developments

With oil supplies under pressure and prices high, it might seem an odd time for OPEC membership to be under pressure, but that seems to be the case.  After years of complaints of a low quota, the UAE quit the group in May.  Nigeria has joined the International Energy Agency and seems to have one foot out the door.  And now there’s talk that original founding member Venezuela may leave the group as part of a deal with the US to develop its massive reserves.

In the near term, with overall supplies curtailed by war, any added supply may be easily absorbed into the market with little noticeable impact on price.  However, over the longer run these defections will make it harder for the remainder of the OPEC+ alliance to manage the market.

As a refresher on what that can mean, we recall the role OPEC+ producers played at the onset of the COVID-19 pandemic.  When Russia balked at agreeing to a production cut, Saudi Arabia raised output to bring them back to the table, triggering a sharp price decline that sent nearby WTI futures to negative $40 per barrel.  But the subsequent agreement eventually reduced the group’s crude oil output from the 38.9 mmbpd April peak to just 30.0 mmbpd in June of 2020, rebalancing the market enough to steer prices higher again.  This saved the economic prospects for OPEC+ and non-OPEC+ producers alike.

In general terms, OPEC+ supports the oil market by keeping capacity offline.  For example, Saudi Arabia has 12.0 mmbpd in capacity, but is pumping closer to 7.8 mmbpd.  This supports the front end of the curve, typically resulting in some degree of backwardation in calendar spreads.  OPEC typically targets production levels, not prices, but can be thought of as aiming to optimize revenues at levels high enough to cover national budgets, but not so high as to damage demand or fund competition.  It has been a balancing act.

Venezuelan crude oil production has been limited by lack of investment and mismanagement for decades, with its poor performance currently granted an exemption from the OPEC quota system.  In the 1990’s, Venezuela routinely pumped 3.2 mmbpd when its quota was 2.8 mmbpd, which the government excused as “just testing capacity.”  And based on its massive reserves there was talk of doubling output to more than 6 mmbpd.  

From annual peak of 3.5 mmbpd in 1997 just before Hugo Chavez took office, output fell to just 500,000 bpd in 2020 before recovering to an average of 940,000 bpd in 2025, according to the DOE.  So the potential for Venezuela to produce more oil is vast, but it’s going to require massive investment and a long time to expand capacity.

OPEC+ has announced it will leave production targets unchanged for October, not that we expect this to have much immediate impact on supply, which remains curtailed due transport restrictions through both the Strait of Hormuz and the Red Sea.  July actual OPEC+ production averaged 37.66 mmbpd according to OPEC’s estimate based on secondary sources.  This was up 1.42 mmbpd from June, but still 5.34 mmbpd below the 43.00 mmbpd 4Q 2025 average.  OPEC will publish its Monthly Oil Market Report on September 10 with ouput figures for August. 

Crude Oil

While the geopolitical risks and the fate of OPEC will drive the larger trends, the market will also incorporate shorter-term factors such as the weekly US inventory data.  While the US figures only reflect one piece of the global picture, the US is both the world’s largest producer and consumer of petroleum, and the DOE numbers often provide a valuable indication of what’s happening at the margin of the market, even if there can be plenty of noise around the signal.

The latest figures for the week ended August 28 included a further draw of 3.1 mmbls from the Strategic Petroleum Reserve.  With the latest decline, the SPR is now down 128.8 mmbls (31%) since March to its lowest level since 1982.  Even so, US commercial crude oil inventories have been maintained near normal working levels, with trade flows adjusting to the SPR release.

Despite the release from the SPR, US commercial crude oil inventories still fell 4.45 mmbls last week to 424.5 mmbls.  This was a near match with the five-year average result, leaving stocks at a 2.4 mmbls (0.6%) surplus to the five-year average benchmark.  Inventories at the Cushing, Oklahoma delivery point for NYMEX WTI futures ticked 0.1 mmbls higher to a three-week high of 22.5 mmbls, but were still 5.3 mmbls (19%) below their five-year average.

Looking ahead, the report for the week ended September 4 will be delayed until Thursday due to the US Labor Day holiday.  Overall, we expect refinery runs to remain near last week’s 98.0% rate for another week or two before scheduled seasonal maintenance trims throughput.  With crack spread margins at record levels we’d expect refiners to defer as much maintenance as possible, but still anticipate runs to fall to 16.0 mmbpd or less at the October seasonal trough.  As for commercial crude oil inventories, we expect to see little change, with another near match with the five-year average result.

Overall, crude oil futures prices may be due for some short-term consolidation or correction after their run to six-week highs.

Heating Oil (ULSD)

Heating oil prices remain well supported on the high level of international refinery outages due to the US war with Iran and ongoing Ukrainian drone attacks on Russian refineries.  The resulting drop in international supply has helped drive what has been an expanding deficit in US total distillate inventories.

For the week ended August 28, the DOE reported an unexpected 0.8 mmbls build in US total distillate inventories, ending a four-week string of consecutive draws.  This trimmed the year-on-five-year average deficit slightly to 16.6 mmbls (13.7%), but the market clearly remains tight.  We note that East Coast (PADD 1) inventories surrounding the NY Harbor delivery point for NYMEX futures fell 1.7 mmbls to a new low of just 19.3 mmbls, 13.2 mmbls (41%) below the corresponding four-week average.  In other words, most of the tightness is focused in the East.

Prices have reached a level that is having an impact on demand, with product shipments falling 449,000 bpd last week to 3.390 mmbpd, the lowest figure since July 10.  The four-week average implied demand of 3.660 mmbpd was 234,000 bpd (6.0%) lower than last year.  There may also be some seasonal weakness on the horizon as refiners typically cut back on shipping schedules over the Labor Day holiday.  But first, the market will see Thursday’s report for the week ended September 4, where we see US total distillate inventories as unchanged to as much as 1.0 mmbls lower on a spurt of refinery shipments ahead of the holiday.

So far, ULSD futures have settled for a peak valuation of $4.6822 per gallon and a $106.23 per barrel crack spread premium over the October WTI settlement.  These levels may represent a valid reflection of the physical tightness we’ve seen in this segment of the market, but they also leave the market overbought and vulnerable to at least some degree of technical correction.  Any further short-term easing of the physical tightness would encourage a pullback. 

RBOB Gasoline

The US gasoline market may not be as dramatically tight as distillates or jet fuel, but inventories remain lean and supportive, supporting what are still strong crack spread margins over the upstream WTI crude oil values.  The DOE data for the week ended August 28 showed US total gasoline stocks falling 1.2 mmbls to 205.7 mmbls, their lowest level since last November.  Refiners typically do draw down inventories of summer specification fuel at this time of year, but stocks were 12.9 mmbls (5.9%) lower than a year ago and 14.3 mmbls (6.5%) below their five-year average.  This was the largest year-on-five-year average deficit since August 7.

The East Coast (PADD 1) inventories surrounding the NY Harbor delivery point for NYMEX futures show a similar tightness.   After a 0.3 mmbls uptick to 52.6 mmbls for the week ended August 28, East Coast gasoline stocks were 2.9 mmbls (5.3%) below their five-year average.  While the deficits in the gasoline inventories are supportive, they are certainly less dramatic than the shortfall in distillates.

Although retail gasoline prices above the $4 mark are keeping pressure on consumers, the impact is smaller than what we’re seeing in the distillate data.  US product shipments of gasoline have averaged 8.905 mmbpd, a decline of 145,000 bpd (1.6%) from the same period of 2025.  We also note the decline was somewhat smaller than the decrease registered back in June.

With the summer driving season drawing to a close, the demand pressure on supplies will also be easing seasonally in the weeks ahead.  At the same time, scheduled refinery maintenance that will reduce output and gasoline inventories typically continue to work lower through the end of October or early November.

Looking ahead to the report for the week ending September 4, we see potential for a further 1.0 to 2.0 mmbls draw from US total gasoline inventories as an extension of the recent trend.  Gasoline stocks typically then rebound moderately over the Labor Day weekend when refiners cut back on shipping schedules.

October gasoline has traded for as much as $3.1926 this past week but encountered at least some technical resistance at that level.  Gasoline is also tracking relatively closely with the upstream WTI crude oil price, with the October gasoline crack spread fluctuating within a $40-44 per barrel range. 

US Natural Gas

The US natural gas market continues to express its characteristic independence, both from the petroleum market and the international price of natural gas.  Storage levels and US weather patterns remain the dominant factors with seasonality coming into sharper focus.

Thursday’s DOE storage report for the week ended August 28 showed a seasonal build of 30 bcf that lagged the 37-bcf five-year average gain.  Storage was 50 bcf (1.5%) lower than a year earlier but still 160 bcf (5.2%) above the five-year average coverage.  The year-on-five-year average surplus has declined the past three weeks in supportive fashion and was the smallest since June 19.

Looking ahead to the data for the week ended September 4, the firming trend is likely to continue.  Early expectations are for 20-25 bcf in net injections, a supportive level compared with the 52-bcf five-year average increase.

The natural gas price action has reflected this modest firming with nearby October futures now testing the $3.00 psychological barrier, a step up from the consolidation in the $2.80 area.  Nearby futures continue to hold above both the $2.622 low from August 2025 and the $2.495 low from March.

In contrast with the nearby gains, December futures are showing a more defensive consolidation in the $3.50 area, that seemingly balances the expectation that seasonal heating demand will support that level against the risk that slow start to the withdrawal season sees it lose its premium over the nearby futures and cash valuations. 

Disclaimer: 

This article and its contents are provided for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any commodity, futures contract, option contract, or other transaction. Although any statements of fact have been obtained from and are based on sources that the Firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed. 

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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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