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The Energy Report

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


Getting Strategic. The Energy Report 10/27/2026

The oil market looked a little soft yesterday as the peace-talk chatter with Iran kept bouncing around, but it found its footing after word that the Strategic Petroleum Reserve just dropped to its lowest level since 1982.

That’s what the SPR is for—an actual emergency—and we’ve had more than our share of those. The crude itself has been reasonably well supplied for a while. The real pain has been on the refining and logistics side, where capacity constraints and transportation costs have stayed elevated and kept product prices sticky even when the crude market eases.

Overnight the picture stayed mixed. Renewed Houthi attacks on Saudi infrastructure reminded everyone that the broader Middle East risk hasn’t gone away, even while the Tehran talks continue.

At the same time, Russia and Ukraine announced a regional ceasefire to allow humanitarian aid into the occupied town of Oleshky. That raised hopes that a wider de-escalation might eventually open the door to some relief on Russian diesel.

U.S. diesel prices have stayed high in large part because we’ve been exporting record volumes to Europe while dealing with our own refinery issues. Three Russian diesel tankers are already steaming toward the U.S., one of them under sanctions. If that flow normalizes, it could take some of the heat out of the domestic diesel market.

Not everyone is celebrating. Trump’s reported deal with Putin aimed at easing fuel prices is already running into legal threats from Congress, so companies that try to move sanctioned or newly available Russian product could find themselves in a regulatory crossfire.

Over in the Persian Gulf, Iran’s Strait Authority said it would take “legal action” against tankers belonging to Sinokor, the world’s biggest tanker owner, which has moved millions of barrels out of Hormuz lately. The authority claims Sinokor vessels have racked up the most crossing violations over the past three months and that enforcement steps have already been taken against at least seven of them. At least, for the moment, they’re talking about lawyers instead of missiles.

OPEC+ is expected to leave output targets unchanged at its upcoming meeting, which keeps the supply side relatively stable while the geopolitical and product-market stories dominate the day-to-day. That leaves the market still two-sided: crude has room to give ground if the diplomatic track holds, but diesel and the broader refined-product complex stay sensitive to any interruption in flows or further refining outages.

The weekend election result in Brazil adds another layer. Lula’s unexpected fourth-term win means the second-largest country in the Western Hemisphere won’t be fully aligned with the Trump administration on China, narco-trafficking, or Middle East policy.

On the energy side there is still common ground—both sides want to see more production from Brazil’s offshore fields, and neither wants Venezuela to slide into chaos—but the broader coalition Trump was trying to build across Latin America just got more complicated. The news crashed the brazen Brazilian currency and slammed the prices of Brazilians favorite exports like coffee cocoa and even sugar.

For oil, that probably means less near-term policy alignment on sanctions or regional energy security, even if the barrels themselves keep flowing. The SPR draw is a reminder that emergency stockpiles exist for a reason, but the market’s real tightness right now is still downstream.

As long as refining capacity and transportation costs stay elevated, and as long as Middle East risks and diesel-export demand remain in play, crude can soften without immediately delivering relief at the pump or at the rack. Traders will watch tonight’s API numbers and tomorrow’s EIA report for confirmation of whether the product side is starting to loosen or whether the structural constraints are still winning.

Natural gas prices plunged yesterday by over 1.4% (settling near $2.60/MMBtu), as Fox Weather and other extended-range forecasts put the world in a shoulder season that doesn’t look to generate significant natural-gas demand for either heating or cooling for the foreseeable future.

Fox Weather’s extended outlook and broader meteorological guidance point to milder-than-normal conditions across much of the Lower 48 into early November, delaying the real start of heating demand and keeping the market in a soft shoulder-season mode. In Europe, they continue to struggle. Inventories are well below average—EU storage is running in the mid-70% range of capacity versus a five-year average closer to the high 80s/low 90s—leaving the continent vulnerable heading into winter.

U.S. LNG exports are doing the best they can, with feedgas flows near record levels around 19–20 Bcf/d as terminals run hard to meet global demand. In the U.S., natural-gas production continues to soar, in part inspired by the high cost of crude oil (still in the $100+ area). If you look at the Baker Hughes rig counts over the last couple of months, we’ve seen an increase in rigs targeting oil, and rigs targeting natural gas directly have also moved higher year-over-year. But it’s the associated gas coming out of those oil wells that is really creating the bulk of the downward pressure on prices. Still, if you look at the five-year average, supplies are slightly above it (latest EIA total of 3,644 Bcf was about 35 Bcf / ~1% above the five-year average). Year-over-year inventories are lower (about 152 Bcf / ~4% below last year).

That year-over-year switch, of course, is because of the record exports from the United States. That’s the setup: mild weather + record domestic production (especially associated gas) + strong but not infinite LNG exports = continued price pressure in the near term.

But weather could still change it because of the deficit that’s why you need to download the fox weather app to stay up to date with any weather shifts at the same time you need to stay tuned to the Fox Business Network because they’re the only network that’s truly invested in you also at the same time you should sign up for the wildly popular Phillip one daily trade levels and you should open your account today by calling me at 888-264-5665 or emailing me at pflynn@pricegroup.com.



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