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The Energy Report

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


This Side of the Atlantic. The Energy Report 10/07/2026

Oil prices are higher, and the diesel crack spread and the gasoline crack spread are surging. This time the rally may be coming from problems on this side of the Atlantic — or should I say in the Atlantic — not only from the geopolitical problems on the other side.

Oh sure, the market is talking about the EIA and a proposed release of oil and diesel stocks. Two EU diplomats say Houthi strikes on Aden airport are intensifying fears over regional supply disruption. Ukraine and Russia are trading attacks, including strikes on Russian oil facilities. European diesel futures are trading about $77 above Brent, highlighting a tight fuel market.

Yet if you have been watching your Fox Weather app, you also know we have a storm brewing in the Gulf that could impact refining operations at a time when we cannot afford much downtime in a very tight global market.

Fox Weather says Tropical Storm Isaias has formed in the southern Gulf and is set to rapidly intensify into a dangerous Category 2 hurricane by Friday. The National Hurricane Center’s 4 a.m. CDT advisory put the center near 22.0N, 94.1W, about 285 miles west of Progreso, Mexico, and about 580 miles southwest of the mouth of the Mississippi River. Winds were 40 mph, pressure 1004 mb, and the storm was moving east-northeast at 8 mph.

The forecast calls for rapid strengthening. Isaias is expected to become a hurricane by Thursday, peak near 110 mph — strong Category 2 — in the central Gulf by Friday, then run into increasing wind shear that could knock it back toward about 85 mph, a Category 1, at landfall early Saturday. On the current track it passes north of the Yucatan on Thursday and approaches the northern Gulf Coast on Friday, with landfall estimates running from around Biloxi, Mississippi, to Panama City, Florida. The overnight track shifted east toward the Alabama–Florida line. Hurricane watches will likely be required for part of the northern Gulf Coast later today. Florida has already declared a state of emergency. Rainfall of 3 to 6 inches, with isolated totals up to 10 inches, is expected from far southeastern Louisiana to the Florida Panhandle.

Track confidence is below average. There is still a wide spread in the guidance: the AI models lean east, the physics-based models lean west. That matters for refiners. A landfall near the Alabama–Florida line puts the biggest concentration of Gulf Coast refining capacity — the Louisiana corridor — more on the western fringe of the cone than in the bull’s-eye. An eastward track still threatens Chevron’s Pascagoula refinery in Mississippi, Gulf Coast logistics, and precautionary shut-ins. A westward shift puts more of the Louisiana complex in play. Storms that have ridden a similar northern Gulf track — Ivan in 2004 into Alabama, Sally in 2020 near Gulf Shores — produced refinery slowdowns, power losses, and port closures even when they missed Houston. The market will price the shut-in risk before it prices the landfall.

The storm could cause shut-ins and refinery problems at the worst possible time. Geopolitics on the other side of the Atlantic already have diesel tight. A Gulf Coast weather hit on this side of the Atlantic is the last thing this market needs.

That is the point the EIA made yesterday, even before Isaias had a name. The October Short-Term Energy Outlook is a diesel-and-Middle-East story dressed up as a winter outlook. EIA raised prices again, then admitted the model was locked before the latest G7 move.

EIA lowered its 2026 oil demand growth estimate to −1.97 million barrels a day from −1.69 million and cut its 2027 estimate to 2.21 million from 2.39 million. The 2025 demand baseline was raised by 0.42 million barrels a day. EIA now projects a deficit of 1.34 million barrels a day in 2026, compared with 1.37 million previously, and a surplus of 4.91 million in 2027, up from 4.90 million.

Most of the country heats with gas or propane. Those homes spend less this winter. Electric heat costs a little more. The pain is heating oil — about 3% of homes, mostly the Northeast. EIA has heating-oil prices up more than 30% from last winter, and bills up about 21%, even after assuming a milder Northeast. Nationally, this winter is assumed about as cold as last winter and the 10-winter average.

The EIA also warned that crude/is still tight because of the Iran war. EIA thinks Middle East flows improve via convoys, bypasses, and ship-to-ship transfers. September shut-ins were the lowest since fighting started, and Gulf flows excluding Iran were back above 81% of pre-war levels. Even so, they hiked Brent. Fourth-quarter Brent is now $105, $14 above last month’s call. Full-year 2026 is about $96 to $98. 2027 is $84, still $10 above the old forecast. September Brent averaged $114. Global stocks fell about 1.9 million barrels a day in the third quarter and are still expected to fall another 0.7 million a day this quarter. Shut-ins are pegged at 4.5 million barrels a day in the fourth quarter, easing to 2.7 million in the first quarter of 2027. Diesel is the squeeze. Retail diesel averaged $6.29 in September. Gasoline averaged $4.35. EIA says diesel stays above $6 in October, then averages about $4.50 next year. Gasoline averages just under $3.60 in 2027. East Coast distillate stocks were 32% below the five-year average in September and stay 20% to 30% light through winter. Henry Hub gas averages $3.16 in 2027, down 9% from 2026, because production is outrunning LNG exports and storage enters winter about 2% above the five-year average. Wholesale power averages $52 a megawatt-hour in 2026, up 11%, with PJM up 41% and the Northwest down 23%.

This is not a cheap-winter story. Gas and propane homes get a break. The Northeast heating-oil customer does not. Price up more than 30%, bill up about 21%, and that assumes a milder Northeast. If it is a normal or cold winter, those bills go higher.

Diesel is the real market. East Coast stocks are 32% under the five-year average. EIA still has them 20% to 30% light all winter. Crack spreads stay fat. Refiners bid crude to make diesel. That is why crude does not collapse even if some barrels sneak out of the Gulf.

EIA just admitted the risk. They raised fourth-quarter Brent $14 to $105 after the East-West pipeline attacks in Saudi Arabia. They still have global inventories drawing this quarter. The glide path to $84 next year only works if Hormuz workarounds keep expanding and shut-ins fall from 4.5 million barrels a day to 2.7 million.

Gas is the relative bargain. Henry Hub down to $3.16 in 2027 on high inventories and production growth that offsets LNG. Power is the other bill: wholesale up 11% this year, and PJM up 41%. The household that “saves” on gas can still get hit on the electric side.

Still natural gas could rally due to the storm at least initially so make sure you download the Fox weather app to keep up on this market moving storm you should also stay tuned to the Fox Business Network because they are invested in you also make sure that you call to open your trading account today at 888-264-5665 or e-mail me at Pflynn@pricegroup.com.



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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.

Contact Phil at 1-888-264-5665 or pflynn@pricegroup.com.