The song remains the same.  The overall stock market continued its march higher in October with the S&P500 gaining +2.3% (YTD +17.5%) and the Nasdaq Composite +4.7% (YTD +23.5%). Energy continued to lag at -1.1% (S&P 1500 Energy, S15ENRS) with mixed energy subsector performance as follows:  Oilfield Services +9.1% (OIH), Midstream -0.7% (AMZ) and Upstream -4.1% (XOP). Clean energy continued its strong YTD rally with October at +11.8% (ICLN). Front month WTI closed the month at ~$61/bbl, a decline of -2.2%.  Natural gas began its winter upswing, increasing +25% from ~$3.30/mmbtu to ~$4.10/mmbtu⁽¹⁾.

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A temporary escalation of trade tensions with China sent WTI down to the $57-$58/bbl level for a few days in mid-October, while increased sanctions on Russia pushed prices to the low $60’s.  In the background, the US has amped up its aggression toward Venezuela, another big oil producer.  Meanwhile, OPEC+ has approved the production return of another 137kbopd for early December (with a pause thereafter).  All these moves highlight the geopolitical influences on near-term price action.

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We will watch to see if traditional buyers of Russian crude (such as China and India) find a way around current sanctions, as they have in the past.  If sanctions hold, will Russian barrels come off the market or simply find other buyers that are willing to risk US wrath in exchange for wider pricing discounts?  Sanctions are price-positive on the margin, but we struggle to see how they meaningfully bolster the fundamentally oversupplied market.  

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Looking to 2026, OPEC, the US Energy Information Administration (EIA) and International Energy Agency (IEA) are all forecasting inventory builds (ranging from +1.4mmbopd to +3.3mmbopd).  We continue to believe a (likely price-induced) supply reduction of at least 1mmbopd is needed to approach equilibrium.  The two most obvious sources are 1) voluntary production reductions from OPEC+ and 2) slower drilling/production from short-cycle US shale.  Neither is currently happening with oil hovering around $60.  It seems a fait accompli that lower prices/more pain are required – which drives our 2026 base case assumption that WTI spends meaningful time in the $50’s.      

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Turning to natural gas markets, cold weather is approaching, LNG export volumes are rising and the powering-AI story continues to capture attention.  This has popped spot gas prices recently, while calendar 2026 NYMEX has crept back to ~$4/mmbtu.  This is up from the recent $3.80/mmbtu level, but still well below earlier highs of $4.40/mmbtu.  Right now, assuming normal weather, we take the over on $4/mmbtu for 2026.

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From a big picture perspective, we’d be remiss if we didn’t mention a notable occurrence in the decarbonization debate.  In late October, ahead of the COP30 climate event in Brazil, billionaire, philanthropist and climate change advocate Bill Gates changed his tune.  Away from emissions toward improving lives.  An illuminating excerpt from the article:

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“This is a chance to refocus on the metric that should count even more than emissions and temperature change: improving lives. Our chief goal should be to prevent suffering, particularly for those in the toughest conditions who live in the world’s poorest countries."‍

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Gates is tacitly recognizing/acknowledging a key concept – hydrocarbon-based energy helps to make the world better.  Diehard ESG advocates see Gates commentary as blasphemy.  We continue to expect decarbonization activity to trend up-and-to-the-right, but we are encouraged to see the discussion shift more toward the logical middle.  See the full Gates article here.

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The vertical integration of Asian energy supply chains took another step forward during October as Haynesville E&P player GeoSouthern was acquired by JERA (a joint venture of Japan’s Tokyo Electric and Chubu Electric Power).  JERA will combine the gassy GeoSouthern production with its ~28% interest in the Freeport LNG project.  Other notable Asian owners of Haynesville E&P assets include Tokyo Gas (which acquired Castleton, Rockcliff and Chevron properties) and Mitsui (which is drilling in the Western Haynesville).  When you live in a country with no hydrocarbons, having access to the entire value chain is looking increasingly attractive.

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Energy investors turned the playbook on its head in October.  Oilfield service stocks ripped, with the representative ETF (symbol OIH) gaining +9.1%.  Part of this was due to the tangential benefits of the ongoing power frenzy, where a number of OFS companies provide short-term power solutions.  Another component of the rally was the deep value of the sector, combined with Q3 earnings and Q4 guidance that weren’t as bad as feared. Concurrently, both oily and gassy E&P companies were weak during October, with the XOP falling -4.1%.  Value abounds across the energy sector.  Unfortunately, we’ve never seen energy stocks successfully fend off meaningful commodity downdrafts.  Thus, is this the best timing?  Probably not, particularly for oily names given our macro view.  Patience grasshopper…patience.

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As always, we welcome your questions and comments.

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(1) Bloomberg