Oil prices, gasoline, and diesel had their biggest break since late July on signs of diplomacy but also real barrels showing up.
Physical market spreads have collapsed as supply rises and talk that President Trump said he was not going to attack Iran after the midterms, which is nice plus new reports of the U.S. brokering peace talks between Russia and Ukraine, is adding to the relief in prices.
Oil flowing through the Strait of Hormuz is keeping the market well supplied. On Monday, Brent fell 7.6% to settle at $104.77 a barrel, while WTI dropped 7.4% to $96.46 — their steepest one-day percentage declines since July 27.
Gasoline futures fell more than 20 cents a gallon, diesel futures lost nearly 19 cents, and European gas futures slid almost 11%.
At the pump, the national average for regular gasoline fell 12 cents over the week to $4.17 a gallon, while diesel eased to $6.29.
Oil prices are plunging, but futures tell only part of the story.
As Bloomberg’s Javier Blas noted, the physical market offers stronger evidence that a wave of barrels is arriving.
The Middle East physical premium for Oman crude over Dubai has fallen to near zero from more than $30 a barrel in mid-September.
Meanwhile, the North Sea crude premium in the Dated Brent market dropped to about minus $1 a barrel from roughly plus $19 in early October. Both physical premiums are now at their weakest in about 3½ months.
Put simply, oil that is actually loaded and shipped is getting cheaper relative to benchmarks — a sign of rising supply, not just nervous futures traders.
The physical market confirms that this supply wave is helping push prices lower.
On the Iran side, the diplomacy signals are mixed but the market is taking the softer path. The U.S. carried out limited strikes on Iran’s Qeshm Island on Monday, officials said, part of a series of quieter defensive actions even as President Trump played down the chance of a full return to war after the midterms. “We had a war with Iran. We won,” Trump told reporters. “I don’t know if you even call it a war because we haven’t been doing any fighting for months.” When asked whether he would strike after the elections, he said “No.”
Iran’s foreign ministry said the ball is in the U.S. court.
We also saw oil extend its plummet after Iranian President Masoud Pezeshkian said the government has been granted certain powers by Supreme Leader Mojtaba Khamenei for talks with the U.S., according to the state-run Islamic Republic News Agency. Diplomatic sources told Al-Jadeed that a breakthrough in U.S.-Iranian negotiations was achieved after Qatari mediation successfully overcame procedural obstacles. We will see but the market liked what it is hearing
At the same time, a China-Oman joint statement called for the Strait of Hormuz to return to normal and safely open to navigation — another sign that even Beijing wants the barrels flowing.
Adding to the relief, the U.S. is mediating new peace talks between Russia and Ukraine in Abu Dhabi next week, according to envoy Steve Witkoff. That takes some of the diesel and product risk premium off the table as well, reinforcing the sense that more supply is finding its way into the system while the geopolitical heat is being dialed back, at least for now.
Concerns about an attack on a pipeline in Kazakhstan are pushing diesel and gasoline crack spreads higher again after a sharp pullback. Persistent tightness in physical supplies puts greater focus on the U.S.-Russia-Ukraine talks: the market is signaling that crude supplies have increased, but refined products remain tight.
Natural gas can’t decide between whether it should get hammered on the forecast for a Super El Niño—which should lead to lower heating degree days in the East—or the possible breakdown of the polar vortex.I can tell you what the market believes by the bets on natural gas shorts being the highest in history.
We have a record short position on natural gas. Hedge funds have built the largest-ever short-only exposure across seven Henry Hub contracts (reaching 625,150 in late-October CFTC data), with net shorts among the most bearish since early 2020.
They’re betting on a mild winter and that US inventories will continue to recover as production stays strong. US storage is entering the heating season in comfortable shape. The latest EIA report put working gas at 3,724 Bcf (as of late October), about 38 Bcf above the five-year average, with the agency projecting end-of-October levels near 3,850 Bcf—roughly 2% above average.
Production remains robust and on track for another record year (EIA sees dry gas around 112 Bcf/d this year, climbing further next year), while LNG exports stay elevated. T
hat’s keeping Henry Hub futures near the $2.90/MMBtu area and well supplied at home.
In Europe it’s a different story. Those prices are through the roof and the tightness of nat
ural gas is a reminder of what a blessing it is for US producers to keep us well supplied. European storage entered November at just 74.6% full—the lowest for this time of year since records began in 2011 and well below the ~90% seasonal norm—with TTF trading in the €94–97/MWh range.
That gap is also making it very attractive for manufacturers to come to the United States.
Earlier we were looking at buying puts out of the money, but you could also buy some calls. Because if we do see a breakdown of the polar vortex, you could see a big short-covering supply squeeze at some point.
NOAA’s winter outlook as reported by Fox Weather is dominated by this Super El Niño (Niño-3.4 anomalies already near +2.4°C), favoring warmer-than-average temperatures across much of the northern US and reduced heating demand.
At the same time, some models and Fox Weather are watching for possible early polar vortex weakening or stretching into late November or early December that could still deliver Arctic air.
Now I don’t know what the odds are of a surprise polar vortex coming in late November or early December, but I do know that if everybody’s short and they have to run for the exits at the same time, you could get a big spike.
It’s a long shot, but you might want to temper some of the short positions with out-of-the-money calls just in case.
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