Oil Rallies on Middle East Conflict as Natural Gas Slides

Crude oil prices continued their rally this week as escalating conflicts in the Middle East, attacks on commercial shipping, and another larger-than-expected decline in U.S. crude inventories intensified concerns about global energy supplies.

Natural gas moved in the opposite direction. Despite record U.S. LNG exports and elevated international prices, Henry Hub futures fell sharply as increased domestic production, above-average storage injections, and warmer-than-normal temperatures delayed the arrival of seasonal heating demand.

---

Oil

Fundamental Analysis

Despite President Trump's pledge to suspend additional military attacks against Iran until after the midterm elections, conflicts in the Middle East continued to escalate this week, supporting the rally in crude oil prices. An unexpectedly large U.S. crude inventory draw added further upward momentum.

WTI reached a high of $110.50 per barrel on Tuesday, the settlement day for the November futures contract, as traders closed out positions. The week's low was Wednesday's $96.25, the first trading day for the December contract.

Brent crude reached a Friday high of $116.35 per barrel, compared with Tuesday's low of $105.95. Both grades settled higher for the week, while the WTI/Brent spread widened to approximately $14.00.

Iran continued attacking vessels in the Strait of Hormuz, including crude tankers and commercial cargo ships, despite the suspension of U.S. attacks. Iranian officials have threatened further escalation should the U.S. and Israel resume military operations.

The U.S. has increased its military presence in the region, deploying a third aircraft carrier and additional Marines.

Meanwhile, the conflict between Yemen-based Houthi forces and Saudi Arabia intensified. Houthi attacks reportedly struck major Saudi metropolitan areas, including Saudi Aramco's headquarters and an oilfield. Saudi troops entered Yemen, while the Saudi Air Force conducted strikes against the country's capital.

Despite the ongoing conflict, crude oil continues moving through the Strait of Hormuz. According to tanker-tracking service Kpler, shipments may have totaled as much as 24 million barrels during the previous week.

However, the global shortage of refined petroleum products remains a more significant concern. Reduced refined-product exports from the Persian Gulf and continuing Ukrainian attacks on Russian refineries have constrained available supplies.

Kpler confirmed that a Russian tanker carrying ultra-low sulfur diesel was loaded for delivery to New York City, with an expected arrival date of November 7. The shipment would be the first under the recently announced agreement between President Trump and Russian President Vladimir Putin.

Tanker transportation costs have risen to approximately $20 per barrel on an all-in basis, about seven times higher than a year ago. Increased risk premiums, vessel day rates, ship-to-ship transfers, and maritime insurance costs have contributed to the increase.

Strong diesel demand has pushed U.S. refineries to their highest operating rates since 1998, according to the commentary. However, total domestic refining capacity has declined approximately 4% since 2019, including the closure of two California refineries over the past year.

U.S. refiners have recorded historically high crack spreads over the past five months. Even after the peak summer driving season, and despite the need for scheduled maintenance, refinery utilization remains above 90%.

U.S. Petroleum Snapshot

The Energy Information Administration's Weekly Petroleum Status Report indicated that commercial crude oil inventories decreased by 3.0 million barrels to 412.5 million barrels, approximately 3% below the five-year average.

The American Petroleum Institute had forecast a 4.9 million-barrel draw, while analysts expected a smaller decline of approximately 300,000 barrels.

Gasoline inventories decreased by 3.0 million barrels to 204 million barrels, approximately 5% below the five-year average. Distillate inventories increased by 1.7 million barrels to 104 million barrels but remain 9% below the five-year average.

Refinery utilization was 93.4%, compared with 93.5% the previous week. Crude inputs increased by approximately 35,000 barrels per day to 16.65 million barrels per day.

Gasoline demand increased to 8.98 million barrels per day, compared with 8.4 million barrels per day the previous week.

Crude imports declined to 5.8 million barrels per day from 6.0 million barrels per day, while crude exports decreased to 3.4 million barrels per day from 4.6 million barrels per day. Refined-product exports remained unchanged at approximately 7.4 million barrels per day.

The Strategic Petroleum Reserve remained at approximately 283 million barrels, its lowest level since 1982. Inventories at Cushing, Oklahoma increased by 1.0 million barrels to 27.6 million barrels, approximately 35% of storage capacity.

U.S. crude oil production fell to 13.3 million barrels per day, compared with 13.7 million barrels per day the previous week and 13.6 million barrels per day a year earlier.

The U.S. oil and gas rig count remained unchanged at 603, compared with 550 a year ago. Oil-directed rigs increased by one, while natural gas rigs declined by one.

Average gasoline prices declined to $4.30 per gallon, down $0.03 for the week but $1.23 above year-earlier levels. Diesel prices declined slightly to $6.32 per gallon, down $0.01 for the week but $2.69 higher than a year ago.

Higher energy prices continued weighing on financial markets, contributing to declines in stocks and Treasury yields.

Weekly unemployment claims declined by 6,000 to 194,000, compared with expectations of 200,000. Housing starts declined 5.2% from August, while pending home sales fell 7.3%.

The Manufacturing Purchasing Managers' Index reached 56, indicating continued expansion, while consumer sentiment remained weak at 48%.

The Dow Jones Industrial Average declined on Friday but finished higher for the week. The S&P 500 and Nasdaq ended lower, while gold declined and the U.S. dollar posted modest gains.

Oil – Technical Analysis

December WTI NYMEX futures carried forward November's upward momentum, moving above the upper Bollinger Band and well above their 8-, 13-, and 20-day moving averages as the rally pushed prices beyond $103 per barrel.

Trading volume was approximately in line with the recent average at 292,000 contracts.

The Relative Strength Indicator reached approximately 75, indicating strong upward momentum and traditionally overbought conditions.

Oil – Looking Ahead

There are few indications that hostilities in the Middle East will ease in the near term. Iran continues attacking shipping in the Strait of Hormuz, while Houthi forces have successfully targeted important Saudi Arabian facilities.

The continued escalation could increase pressure for earlier U.S. military intervention than previously indicated.

Global refined-product shortages are also likely to persist. At some point, U.S. refiners will need to reduce operating rates for scheduled maintenance and the transition to winter fuel blending.

Meanwhile, the next two weeks' weather outlook appears unfavorable for heating-oil demand in the Northeast, with above-normal temperatures expected to limit early-season heating requirements.

---

Natural Gas

Fundamental Analysis

November NYMEX natural gas futures declined sharply this week as domestic production increased, seasonal heating demand remained subdued, and an above-average storage injection added pressure to prices.

The week's high was Monday's $3.18/MMBtu, while the low was Friday's $2.62.

Natural gas demand was estimated at approximately 104.5 Bcfd, reflecting reduced power-generation consumption, while supply increased to approximately 117 Bcfd.

LNG exports reached a new high of 19.8 Bcfd, while natural gas exports to Mexico were approximately 6.8 Bcfd.

European natural gas prices climbed to levels not seen since 2022 as concerns about LNG availability increased ahead of winter.

U.K. NBP natural gas was quoted at $30.65/MMBtu, Dutch TTF futures at $29.60/MMBtu, and Asia's JKM at $30.63/MMBtu.

European and Asian buyers continue competing for LNG shipments, contributing to international prices reaching their highest levels in approximately four years. European Union natural gas storage is currently estimated at approximately 75% of capacity.

The EIA's Weekly Natural Gas Storage Report indicated an injection of 77 Bcf, compared with a forecast of 80 Bcf and a five-year average injection of 70 Bcf.

Total working natural gas in storage increased to 3.644 Tcf, approximately 4.0% below the previous year but 1.0% above the five-year average.

Natural Gas – Technical Analysis

November NYMEX Henry Hub natural gas futures declined below the lower Bollinger Band and their 8-, 13-, and 20-day moving averages.

Trading volume was below the recent average at approximately 125,000 contracts.

The Relative Strength Indicator declined to approximately 30, indicating that the market has reached traditionally oversold momentum levels.

Natural Gas – Looking Ahead

Natural gas production remains relatively steady, while above-normal temperatures continue delaying the onset of typical fall heating demand.

LNG exports are expected to remain strong, supported by elevated international natural gas prices and continued demand from Europe and Asia.

The surplus of natural gas in storage relative to the five-year average continues to narrow.

With 3.644 Tcf in storage and only two weeks remaining in the official injection season, weekly injections of approximately 178 Bcf would be required to reach 4.0 Tcf by November 1.

---

Weekly Oil & Gas Commentary is provided for informational and educational purposes and should not be considered investment, trading or financial advice.