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The Energy Report

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


The Oil Weapon Is Back. The Energy Report 11/12/2026

Oil prices continue to fall, partly because Saudi Arabia is raising output, and now the Saudis are reportedly threatening to use oil as a weapon and drive prices near zero. Could we enter a new phase from oil be in war mode to an all-out oil production war? Those are fighting words from the Saudis, who have recently had their hands full with the Houthi rebels, and the threat to sink prices is aimed squarely at Russia. According to the reports, Crown Prince Mohammed bin Salman warned that he would pump at full capacity unless Russia stops sending Iran weapons that end up in the hands of the Houthis. If you think the Saudis are bluffing, you haven’t been paying attention.

The Saudis are already turning on the taps. Bloomberg reports that Saudi Arabia told OPEC its production jumped 26% in October to one of its highest monthly levels in years, and Iraq says its output hit a new wartime high. That comes after Saudi production fell to its lowest level since 1990 back in August, when Houthi attacks shut down the kingdom’s East-West Pipeline.

Now the barrels are coming back with a vengeance and the Saudi Crown price has a bit of vengeance in mind. And now oil is flipping from tight supply to perhaps oversupply.

Brent has lost about 18% this month, according to Saxo Bank, and Middle East producers are already cutting prices to compete for buyers. That’s a race to the bottom, and Russia, which needs every petrodollar it can get to fund its war in Ukraine, is the one who should be worried. Putin’s war machine depended on the act that Europe was addicted to0i Russian oil and gas and could not stop buying it because they needed it This isn’t the first time MBS has stared Putin over the Houthis and Iran.

Russia Matters reports that the crown prince previously stepped in to stop Putin from giving the Houthis anti-ship cruise missiles. The Houthis have fired missiles and drones at Saudi cities and pumping stations, and sirens even sounded in Mecca. So if Russian weapons are making their way through Iran to the Houthis, the Saudis have every reason to fight back with the one weapon nobody has more of: oil. The last time the Saudis started a price war, back in 2020, oil went negative. Russia remembers.

Overnight, oil couldn’t make up its mind. Brent and WTI both fell more than $1 a barrel in early Asian trading on hopes for progress toward peace with Iran and between Russia and Ukraine. Then they bounced back as tankers kept burning in the Strait of Hormuz. CNBC had Brent at $93.21 and WTI at $86.80 early this morning. Ole Hansen at Saxo Bank calls it a “no war, no peace” situation: Middle East production is recovering even though the US and Iran are deadlocked. Bloomberg reports that Middle East crude flows are near pre-war levels, but they depend on workarounds like the East-West Pipeline and ship-to-ship transfers instead of safe shipping lanes. As ANZ put it, “Supply is recovering, but it relies on workarounds rather than secure shipping lanes, so disruption risk remains.”

The market is also looking ahead to next week’s US-China summit, and some think the Iran war is unlikely to escalate before then. On the other side of the ledger, the American Petroleum Institute reported a 9-million-barrel build in US crude supplies. The official Energy Information Administration numbers come out today at 11 a.m. Central, a day late because of the Veterans Day holiday. If the EIA confirms anything close to that build, the bears will be in the driver’s seat, and the Saudis will be riding shotgun.

Diesel is still the sore spot. Saxo says diesel is near $180 a barrel, while LNG supplies remain tight and European natural gas prices stay high heading into winter. Crude may be falling, but the pain at the diesel pump is sticking around a lot longer than anybody wants. So keep your hedges on, because when oil becomes a weapon, nobody wants to be on the wrong side of the trade.

Natural gas has awoken from its bearish slumber, as Fox Weather reports that a nor’easter is taking shape and the Northeast is bracing for snow and travel delays. After weeks of record shorts and mild weather, the bulls finally have a storm to rally around.

Fox Weather says a storm system will race through the eastern US, move off the coast and develop into a nor’easter by Friday. It’s expected to lash the I-95 corridor with heavy rain and gusty winds starting Thursday, and parts of the Mid-Atlantic, including New York City and Philadelphia, face a limited severe storm threat. Farther north, it should deliver the season’s first significant snow to northern Pennsylvania, upstate New York and northern New England through the weekend, with up to a foot possible in the White and Green mountains and around the Great Lakes. Expect travel delays, and expect furnaces across the Northeast to finally kick on for real.

The market got a little ahead of itself yesterday, but the bulls are back this morning. December natural gas hit an eight-month high early Wednesday on the cold forecasts, then reversed and settled down 8.1 cents at $3.215 as forecasts turned more seasonal and longs took profits. Overnight, the buyers came right back. December opened at $3.239, traded as high as $3.318 and as low as $3.226, and is trading at $3.278 this morning, up 6.3 cents or almost 2%. Technically, prices are holding above the envelope support at $3.10 and $3.04, and the stochastics have turned up from oversold to about 59. Momentum is still slightly negative, at minus 0.06, so this rally still has to prove itself. The upper Bollinger band at $3.425 is the next big upside target, and the lower band sits way down at $2.774. Fox Weather still sees below-average temperatures in the eastern US for November 16 to 20 before things return to normal. So the cold is coming, and now the market wants to know how long it sticks around.

The weekly storage report is the next big test. It’s delayed until Friday at 9:30 a.m. Central because of the Veterans Day holiday. The consensus calls for an injection of about 72 billion cubic feet, and Arc Research’s model sees about 76 Bcf.

That compares with a 40 Bcf build for the five-year average and 43 Bcf last year, so it’s a bearish-looking number on paper. Reuters reports that analysts expect the storage surplus to grow to about 2.1% above normal from 1.4% the week before. Supplies stood at 3,801 Bcf after last week’s 77 Bcf build. The fundamentals still lean toward the bulls short term. Production is falling: LSEG has Lower 48 output averaging 112.3 Bcf a day so far in November, down from 113.4 in October and the record 115 in August. LNG demand is roaring, with BloombergNEF estimating 20.6 Bcf a day flowing to export terminals on Wednesday.

And the speculators are still loaded up on the short side. Funds pushed their net short to a record 636,576 contracts, and Reuters notes that combined speculator shorts are the biggest since March 2020. That’s a lot of fuel for a short-covering rally if the cold arrives on time. The bears do have their talking points and long term the Super El Nino on their side. The Energy Information Administration raised its 2026 production estimate to 113 Bcf a day and cut its Henry Hub forecast for November through March to $2.87.

And Fox Weather forecasters are still saying that the odds favor that a “Super El Niño” will bring a warmer-than-normal winter. Meanwhile, Europe is a whole different story: its gas storage is just 72% full, against an 89% five-year average for this time of year. That’s why every cargo of American LNG is worth its weight in gold.

Kemp Energy Reported that “The NORTH ATLANTIC OSCILLATION has turned negative in recent days bringing colder temperatures and more heating demand to Northwest Europe. The NAO measures the pressure differential between the area of high pressure normally found around the Azores and the low pressure normally located near Iceland and Greenland. Higher-than-average differentials accelerate the polar front jet stream and keep cold air bottled up in the High Arctic. Lower-than-average differentials cause the polar front jet to slacken and meander, and can allow salients of cold air to escape and penetrate into lower latitudes in the Northeast United States and Northwest Europe. NAO is an atmospheric rather than oceanic phenomenon so cycles are much shorter and more unstable than El Niño and the Southern Oscillation (ENSO). The recent slackening and meandering of the polar front jet has brought a mass of cold air into Northwest Europe and much lower temperatures, overwhelming the background warmth from a strong El Niño in the Pacific:” So stay ahead of the storm and download the Fox Weather app. Stay tuned to the Fox Business Network, sign up for the wildly popular Phil Flynn Daily Trade Levels, and get my Manic Metals Report. Follow me on X at @EnergyPhilFlynn.

Between a nor’easter, a record short position and a storage report on Friday, natural gas can move a dime in the blink of an eye. Whether you’re a producer hedging your risk, an end user locking in your costs, or a trader looking to catch the next big move, let’s talk. Open an account with at Price Futures Group. Call 888-264-5665 or email me at pflynn@pricegroup.com, and let’s put a plan together before the next storm hits.



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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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