Natural Gas (Henry Hub)
Winter 25/26 - Neutral
Fundamentals
- Weather remains king with price action moving on each updated weather forecast
- A cold start to December led to prompt Henry Hub prices reaching a high of $5.28 on December 5
- Mild weather for the past month has driven the now prompt February contract down to $3.10 as of January 14
- Inventories built to 3.96 Tcf, before withdrawal season officially started
- Updated end of season storage is now projected to be 1.85 Tcf, just above the five-year average
- Plaquemines & Corpus Christi LNG have added over 4 Bcf/d of additional LNG demand
- Golden Pass LNG has taken initial feedgas as it works toward start up
- Forecasts are for material feedgas volume by February 2026
Strategy
- Layer in protection on front of curve rallies
- Even though call skew has weakened take advantage of upside participation with option structures
Summer 2026 onward - Bullish
Fundamentals
- LNG demand growth really starts to ramp in the 2H 2025 and continues to grow rapidly into 2027
- Current estimates are for nearly 20 Bcf/d of LNG demand by the start of 2027
- Permian supply will grow with new pipe in late '26 and '27, but lower oil prices have reduced the liklihood of material future gas growth
- Even after the recent oil volatility there remains concerns about furture crude production growth
- There becomes a "call on Haynesville" to bridge the gap between new LNG demand and supply
- A lack of Haynesville activity could create a gap between supply and demand which could bolster price
- The ongoing bullish thesis starts with Winter 25/26 drawing down below the five-year average
- A warm winter and lack of material drawdown would drag futures prices lower ahead of the next slug of structural demand
Strategy
- Layer in protection on front of curve rallies
- Higher than normal call skew and a strong swap price mean collars can provide both a nice floor as well as upside participation
Crude (WTI)
Cal 26 - Bearish
Fundamentals
- Volatility has returned to oil markets as geopolitical risk reemerges - completely overshadowing the global oversupply narrative
- Markets saw a rather muted price move following news the US raided Venezuela and captured Maduro on January 3
- In the Middle East, major demonstrations against the Iranian regime remain ongoing
- The possibility of the US involvement in the political unrest is fueling upward pressure on oil price
- The WTI forward curve is fully above $60.00 as of Wednesday January 14
- Expectations remain for supply to outpace demand in 2026
- In its latest monthly report EIA forecasts global oil balances will be oversupplied by 2.83 MMBbl/d in 2026
- OECD inventories have recently increasted near the five-year average bucking the trend from the first half of 2025
- Inventory builds have been increasing 'on the water' as well as in Non-OECD countries
- China was a major buyer throughout 2025, building inventory at a quicker than normal pace
Strategy
- Hedge into strength via swaps to protect as much cashflow as possible
Cal 27 - Bearish
Fundamentals
- The state of Cal 27 for oil largely depends on how the oversupply narrative unfolds throughout 2026
- Bearish price forecasts due to oversupply has reduced non-OPEC+ supply projections
- It is possible that by 2027 and 2028 growth from non-OPEC+ countries could be minimal to negative
- Combine this with OPEC bringing back a large quantity of spare capacity, the oil market could find itself relatively tight in the physical market
- This means prices would need to rise against the current curve
Strategy
- Systematically add hedges when economically viable
- Utilize swaps to protect as much cashflow as possible or collars if able to tolerate a lower floor price
