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The Energy Report

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


Good Morning Lake, America. The Energy Report 08/28/2026

It brings a smile to my face to see President Trump tweak our neighbors to the north with the desire to rename Lake Ontario “Lake America,” driving liberals and lefties like Mark Carny nuts as the oil futures are back focused on comments about the war with Iran. We got a little boost yesterday when it seemed the United States was not willing to give Iran an inch and go back to the memorandum of understanding they had in recent months — because Iran didn’t live up to it. And when you don’t live up to your commitments, President Trump will always make you pay a price.

People can criticize the war against Iran or even the trade war with Canada. The one thing that is certain is that President Trump is rewriting the global energy power order. Even as Ontario premier Doug Ford threatens to cut off electricity to millions of Americans which will probably only impact high usage customers Canada would be on the wrong side of the new energy order.

Reports yesterday said the Trump administration is not only taking a financial interest in Venezuelan oil wells but is also in discussions with the country about having Venezuela — a founding member of OPEC, one of the five nations that created the cartel in Baghdad in September 1960 — leave the organization. That would be another blow to the cartel that tried to hold the world hostage during the 1973 Arab oil embargo, when Arab producers cut output and embargoed shipments to the United States after the Yom Kippur War and sent prices soaring. Reports from Axios, the WSJ, say fields include Orinoco Belt acreage and Lake Maracaibo assets previously tied to former insiders and Chinese interests. Private U.S. producers would develop them and send more revenue back to Caracas. Details are still being negotiated and the deal could still fall apart.

It comes after a major player, the United Arab Emirates, left OPEC and OPEC+ effective May 1, 2026, after nearly 60 years in the group. Abu Dhabi has made it clear they want to raise production toward 5 million barrels a day in the next few years and not be beholden to Saudi quotas any longer. Iran is also making rumblings that if they don’t get more barrels of production, they will go their own way. Iraq has been reported considering the same unless it gets a bigger quota.

On top of that, Russian threats to ramp up attacks on Ukraine are not sitting well in the market and are another reason the crack spread is starting to rise. As we have said before, where we are most vulnerable in the world is in the diesel crack spread. It’s not just because of the war. The war has highlighted the situation: the green energy movement, the fight against refineries, and the fight against oil are now hurting us in a time of surging demand and hurting the global economy.

U.S. refiners are doing everything they can to alleviate that. They have become refiners to the world. U.S. exports of both crude and product have hit all-time records. The charts on the crack spread looked positive as we head into shoulder season, and there is growing hope they will be able to rise to the occasion.

On top of that, U.S. Central Command says the Strait of Hormuz is open again. CENTCOM Commander Adm. Brad Cooper said Thursday that U.S. forces have cleared Iranian sea mines from the internationally recognized shipping lanes — mines laid months ago by the IRGC — and called it a “major milestone.” Cooper said American forces have helped nearly 1,500 commercial vessels transit the strait under coordinated protection, moving almost 750 million barrels of crude to world markets. At the same time, he said Iran has exported zero oil from its shores since the U.S. naval blockade resumed in mid-July. U.S. forces turned back about 75 vessels trying to run that blockade and disabled three that would not comply. Cooper’s says that bottom line: “International shipping lanes are open and momentum is building.” Iran’s diminishing capability to cause more problems signals we will see an end to this conflict soon. Then we will have to address the real problems — rebuilding energy infrastructure.

The breakdown of OPEC after this war means we are probably going to see an incredible production surge as former members of the cartel struggle to get back lost market share. For Venezuela, they weren’t producing a lot of oil for OPEC since Hugo Chávez pushed his brand of socialism on the country and destroyed its economy and oil industry. Production is still only around a million barrels a day, a shadow of what it once was.

The latest OPEC Monthly Oil Market Report, using secondary sources for July, has the group pumping 23.63 million barrels a day. That is up 1.66 million barrels a day from June, but it is still a long way from the 27.6 million they averaged in 2025 and the 28.5 million they were doing in the fourth quarter of last year. In other words, the barrels are coming back, but the war still left a hole of roughly 4 to 5 million barrels a day versus last year’s run rate. That is being filled by risng US and non OPEC producers.

But it is not what they produce today that matters as much as what they will be missing in the future. Just consider the reserves. Venezuela holds the world’s largest proven crude reserves — about 303 billion barrels. The UAE holds roughly 113 to 120 billion. Iraq holds about 145 billion. Combined, that is well over 550 billion barrels — a huge share of what OPEC used to claim as its resource base. That is a significant hit to the cartel’s influence around the world.

From the days when OPEC used oil as a political weapon against the United States, we have come full circle. We are watching the last throes of a cartel that has been a thorn in the side of free market capitalism everywhere. A weaker OPEC and more barrels chasing market share is a win for free market capitalism. Natural gas is a touch softer as we wave goodbye to the September contract and say hello to shoulder season. The September futures went off the board yesterday at $2.907, up more than 2% on the day after the EIA printed a smaller-than-expected storage build. October is now the front month and is hovering right around that $2.91 area this morning.

Yesterday’s EIA report for the week ending August 21 showed working gas up just 15 Bcf to 3,184 Bcf. That was below the 20 Bcf consensus and well under the 33 Bcf five-year average for the week. Stocks sit 30 Bcf below last year but still 167 Bcf, or about 5.5%, above the five-year average. The last two reports were the tightest of the peak summer season — only 31 Bcf added since August 7 — because heat kept the power plants burning gas. As John Kemp likes to put it, U.S. gas stocks have started to normalize. Lower prices and more gas-fired generation are doing the work. The surplus over the ten-year seasonal average has narrowed to 154 Bcf, or about 5% and half a standard deviation, as of August 21. That is down from a surplus as large as 200 Bcf at the start of July, and it is the slimmest cushion we have seen in more than four months, since mid-April. Cheap gas is finding a home in the power stack, and that is slowly eating the overhang.

The market is watching the Fox Weather app for the next two things that matter: heat and tropical storm action in the Atlantic. Fox Weather is tracking another blast of late-summer heat, with record or near-record highs across the Southwest through the weekend and above-normal temperatures across nearly the entire Lower 48 into the first ten days of September. That keeps air conditioners running and gas demand for power alive even as we slide into shoulder season.

In the Atlantic, Tropical Storm Dolly is moving west toward the Leeward Islands this weekend. Forecasters expect it to stay a relatively weak system and likely degenerate into a tropical wave before it gets there, but it still means heavy rain for the islands and a reason to keep one eye on the tropics. Traders should download the Fox Weather app, stay glued to the Fox Business Network, and follow the heat and storm tracks in real time. Have a great weekend.



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Phil is one of the world's leading energy market analysts, providing individual investors, professional traders and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline and energy markets. Phil's market commentary, fundamental and technical analysis, and long-term forecasts are sought by industry executives, investors and media worldwide.

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Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Alaron Trading Corp. its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

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