Week Ending April 17

WTI settles higher as sanctions and trade hopes offset demand downgrades

WTI prompt-month contract rose $2.21 to settle at $64.58/Bbl on Thursday, snapping a two-week losing streak. This rally, however, came against a backdrop of weakening demand forecasts. From renewed US sanctions targeting Iranian crude to shifting global trade flows and synchronized demand downgrades from major forecasting agencies, the week underscored a growing disconnect between short-term bullish momentum and medium to long-term market softness.

The IEA slashed its 2025 global oil demand growth forecast by 300 MBbl/d to 730 MBbl/d, the most bearish total among the major monthly reports. The EIA had already reduced its forecast to 900 MBbl/d. These downward adjustments reflect mounting concerns over macroeconomic fragility and escalating trade tensions.

Despite the bearish demand outlook, midweek crude prices gained on renewed optimism around US-China trade relations. Beijing signaled willingness to reengage in talks, contingent on respectful dialogue and a US-appointed negotiator with presidential backing. President Trump also hinted that a trade deal with the EU remained “possible,” injecting further optimism into markets.

Supply-side risks added to the bullish sentiment. The Trump administration imposed new sanctions on Chinese refiner Shandong Shengxing Chemical Co., accusing it of handling more than $1 billion worth of Iranian crude. The move reaffirmed Washington’s “maximum pressure” campaign, intensifying efforts to restrict Iranian exports and penalize entities involved in sanction violations.

The week spotlighted the widening gap between short-term price action and longer-term fundamentals. While geopolitics and shifting trade dynamics have supported crude futures in recent sessions, the persistence of downward demand revisions suggests deeper structural headwinds. Until macro conditions stabilize and trade tensions ease, the balance of risk appears heavily skewed toward oversupply and weaker prices in the months ahead. AEGIS maintains a neutral view on crude prices.

Natural gas extends decline for a third consecutive week, while basis jumps.

The May NYMEX contract settled 29c lower at $3.27/MMbtu, marking the third weekly decline. Gas prices have fallen nearly $1 over the past three weeks. Despite persistent weakness in the front of the curve, Winter ‘25/’26 and Summer ’26 posted small gains of 2c and 6c, respectively. While Henry Hub prices have declined, basis prices in West Texas have surged higher.

Over the past several weeks, weather-driven demand has fallen to a seasonal low as temperatures have risen. Two-week forecasts show Lower 48 temperatures slightly above the ten-year average and trending toward 65°F. Our modeling for US gas storage shows inventories tracking just below the five-year average for May and June, before the deficit to the five-year average widens out mid-summer and starts winter around 3.8 Tcf. This end-of-season estimate includes assumptions for moderate production growth to about 108 Bcf/d. Lower production of about 106 Bcf/d would result in a lower November end-of-season number, around 3.6 Tcf.

Meanwhile, despite the drop in Henry Hub prices, Waha basis prices have surged higher. Gas prices at the Waha hub in the Permian Basin have been under significant pressure this year, with basis declining to nearly $-5/MMbtu at the end of March. Since the start of April, Waha basis has rallied $1.90 to $-2.14/MMbtu. Fixed price Waha has jumped $1 to $1.10/MMbtu over the same period. It's possible that a combination of the decline in Henry Hub and short covering in basis led to this jump in price. It should also be noted that Waha prices are particularly volatile during the spring maintenance period, with pipeline egress capacity often being significantly constrained.

AEGIS recommends hedging with swaps for near-term contracts, costless collars for Winter ‘25/’26, and either swaps or tight collars for Summer ’26.