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The Energy Report

Phil Flynn
http://www.pricegroup.com/
pflynn@pricegroup.com


Another spooky Weekend. The Energy Report 10/30/2026

The oil market is once again getting spooked on the eve of All Hallows’ Eve, since we continue to have risks to supplies and real tightness in diesel prices across the globe.

The diesel crack spread, which had eased, bounced back after reports that Russia will extend its diesel export ban for the rest of the year (while using quotas to meet limited commitments under the recent Trump-Putin deal), and attacks in the Red Sea and around Hormuz are raising concerns of continued supply disruptions.

‘As the market awaits Iran’s response to Vice President JD Vance’s letter to Iranian hardliner Mohsen Rezaei, it continues to flip-flop as it tries to gauge the odds between war and peace. Russia’s producer diesel export ban was due to expire on October 31. Sources familiar with the discussions told Reuters that Moscow plans to extend the ban through year-end while expanding a quota system so some refiners can ship fuel and help fulfill the deal with the U.S. Those quotas are expected to roughly quadruple in November to about 2 million metric tons (roughly 0.5 million barrels per day), with shipments under existing intergovernmental agreements continuing.

Deputy Prime Minister Alexander Novak has said some tankers are already under way and that refinery utilization has improved as Ukrainian drone attacks on plants subsided. Even so, the volumes under discussion remain modest relative to the global diesel deficit, and Russian refining capacity is still constrained after months of damage. That is keeping the distillate market tight even as limited Russian barrels start to move. Global diesel remains scarce. Crack spreads have been extremely elevated (at times near or above $100 per barrel earlier in the month and still historically high), U.S. retail diesel has been stuck above $6 a gallon, and inventories are low heading into the Northern Hemisphere heating season.

Disruptions in Russia and the Middle East have removed a large share of seaborne diesel and gasoil supply. Freight rates and delivered crude costs have also squeezed some refining margins even as product tightness persists. In the Red Sea and around the Strait of Hormuz, the risk picture is still elevated. Houthi activity and territorial gains near Bab al-Mandab continue to threaten shipping and alternative Saudi export routes (including Yanbu and the East-West pipeline), while Iranian-linked or other attacks on tankers in and near Hormuz have kept the market on edge. Some commercial traffic has returned through Suez/Red Sea routes, but the recovery is incomplete and the threat of further incidents remains real. Any escalation there compounds the diesel tightness.

On the Iran front, the market is waiting for Tehran’s formal reply to the letter Vice President JD Vance sent (via Qatari mediators) to Mohsen Rezaei, secretary of Iran’s Supreme National Security Council and a longtime IRGC figure.

The letter, reported by the Wall Street Journal and others and apparently read/approved by President Trump, focuses on a possible framework for renewed talks rather than detailed peace terms, with nuclear issues on the table from the start and Vance potentially leading a U.S. delegation. Iranian outlets confirmed receipt but said there had been no response yet.

Qatari mediators are back in Tehran today, working on a U.S.-Iran deal, and an official briefed on the talks says the mediation is being coordinated with the U.S. side. Qatar floated a draft peace plan earlier in the week, but a senior Iranian official has already called the ideas unacceptable and said Tehran is holding firm on its nuclear position.

Washington wants nuclear issues on the table from the start; Iran is demanding the port blockade ends and oil export sanctions get lifted first. This is the same shuttle diplomacy we’ve been watching, with Iran still pushing its own seven-day proposal to end the broader conflict. The market will be watching whether this round produces any real movement on sanctions relief or Hormuz traffic, or if it’s just another round of talking while the supply risk stays elevated. Any credible path to lifting the oil export constraints would be a clear bearish signal for crude, but the gap on sequencing looks as wide as ever right now.

Trump has at times downplayed the outreach as being about medical supplies rather than peace talks, while also warning of possible renewed strikes after the midterms.

The flip-flopping between diplomacy and escalation risk is exactly what the crude market spooked. And that’s why we’re seeing continued volatility. Separately, the localized ceasefire in Oleshky in the Kherson region that First Lady Melania Trump helped broker is holding so far, and the big breakthrough is that the heavily mined roads into the town have been cleared.

That was the key hurdle—those routes were too dangerous for any real aid or evacuations. Now the humanitarian convoy can get in with food, medicine, and water for the few thousand mostly elderly residents still stuck there, and people who want to leave can get out safely. It’s a narrow, temporary pause focused purely on civilians, but it’s moving and raises hopes for a path to end the Russia Ukraine war.

On the broader Ukraine track, Russian President Putin has signaled readiness to resume trilateral U.S.-Russia-Ukraine talks (focused on post-conflict security arrangements) around November 10, potentially in Abu Dhabi, after meetings with envoy Steve Witkoff.

He has continued to stress that any settlement must address what Moscow calls the “root causes” and that Russia is not interested in a short-lived pause. The market is treating these peace signals as fragile while the Iran and diesel supply risks dominate the near-term bid as diesel continues to be the tightest part of the barrel. Russia’s limited export flexibility is not a quick fix, and the Iran talks/strike-risk seesaw plus Red Sea/Hormuz threats are keeping a risk premium in crude. Watch for any Iranian response to the Vance letter and further clarity on the Russian diesel quotas. Stay tuned—the market is still pricing war-and-peace odds on a daily and hourly basis.

There’s nothing that can really scare natural gas right now, especially after the EIA reported an 80 Bcf injection for the week ending October 23 unless of course if you are a producer. Then it is horrifying.

The injection lifted total Lower 48 working gas to 3,724 Bcf. Stocks sit 147 Bcf (about 3.8%) below year-ago levels but 38 Bcf (about 1%) above the five-year average of 3,686 Bcf.

In other words, the market is still a bit leaner than last year but comfortably inside the historical range and slightly above normal for this time of year. The risk of a sharp drop below $2 is real if weather stays mild, but thank goodness for LNG exports.

Feedgas demand has been running near record highs in the 19–20+ Bcf/d range, with terminals operating hard and more capacity coming online. That structural export pull is the main reason prices haven’t collapsed further despite the comfortable storage picture and strong domestic production.

Natural gas producers are praying for a cold winter but fox weather continues to the highlight the Super El Niño influence on the 2026-27 winter. Fox weather says that the pattern rn favors warmer-than-average temperatures across much of the northern and eastern U.S. (key heating regions), with a more active, stormier track farther south. That setup generally points to softer population-weighted heating demand than a classic cold winter would deliver, which keeps a lid on natural gas.

The EIA’s 2026–27 Winter Fuels Outlook (released with the October STEO) expects natural gas households—roughly half of U.S. homes—to spend about 9% less than last winter on average (around $640 for November–March). Lower residential prices and similar-to-milder conditions in key regions (Northeast, Midwest, and South) drive the decline, while the West is the outlier with higher spending on a colder forecast versus last year’s unusually mild winter. National temperatures are projected near last winter and the 10-year average, but the regional tilt favors less heating demand where it matters most for gas. Near-term fundamentals remain loose. Current storage is not tight: working gas stood at 3,724 Bcf as of the week ending October 23 (an 80 Bcf injection), roughly in line with or slightly above the five-year average and providing a solid cushion into the heating season. Production is robust—EIA sees U.S. dry gas output at a record ~112.2 Bcf/d in 2026 and rising further to ~116 Bcf/d in 2027—more than offsetting rising LNG exports.

That leaves LNG as the primary price support right now. A sustained shift would require the winter forecast to turn meaningfully colder and/or this Super El Niño (with high odds of a strong-to-very-strong, potentially historic event) to break down and allow more Arctic air into the northern population centers. That’s why staying on top of the evolving weather (Fox Weather app) and the market action (Fox Business) remains essential as the heating season gets underway. At the same time, sign up for the wildly popular Phil Flynn Daily Trade Levels as well as special reports. You can also open your account today with The PRICE Futures Group by calling 888-264-5665 or emailing pflynn@pricegroup.com.

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