Oil Market: Diplomacy Presses Prices, Geopolitics Maintains Premium
As of Tuesday, January futures for Brent dipped below $110 per barrel, while the nearby December contract traded in the range of $114–116. This gap between contracts reflects significant backwardation; the market is paying a considerable premium for immediate oil deliveries. WTI remains around $101, with the Brent-WTI spread narrowing to approximately $9.
Key factors influencing oil price dynamics include:
- Diplomatic Track. Delegations from Saudi Arabia, Turkey, and Pakistan held negotiations in Tehran early in the week, agreeing to continue discussions. This marks the first substantial argument for sellers during the military rally.
- US Political Calendar. Washington has previously indicated that it does not plan new strikes against Iran before the midterm elections on November 3, temporarily reducing the risk of sharp escalation.
- Monetary Policy. The Fed raised rates for the first time in three years in September, and high oil prices intensify inflationary pressures and expectations for further tightening, which dampens demand for commodity assets.
- Technical Picture. Prices are stagnating at the upper boundary of the annual range; some analysts anticipate a correction, while new escalations could lead prices to $120 by the end of the year.
Hormuz Strait and Persian Gulf: Physical Risks to Oil Supplies
Despite diplomatic signals, infrastructure risks remain unprecedented. Over the past week, Iran reported damage to seven tankers in one night, and the IRGC announced the mining of a "unauthorized" southern route, where two supertankers with a total load exceeding 4.5 million barrels were detonated. Yemeni Houthis continue attacks on Saudi Aramco facilities, and the company has evacuated personnel from its headquarters in the eastern province.
Paradoxically, oil exports from the Middle East have rebounded: according to vessel tracking data, they exceeded 24 million barrels per day in the week leading up to October 18, surpassing pre-war levels. Saudi Aramco has increased throughput via the pipeline bypassing the strait to Red Sea ports more than threefold; however, the cost of military risk insurance remains around 3% of the vessel's value.
OPEC+: Quotas on Paper and Meeting on November 1
Seven key participants of the alliance — Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, and Oman — have maintained target production levels for the second consecutive month. Riyadh's quota stands at 10.5 million barrels per day, while Russia's is 9.9 million. However, the actual production of the group in August was around 25 million barrels per day, which is approximately 5 million below pre-war levels. The next meeting is scheduled for November 1; the market does not expect quota changes until 2027, as the war has delayed the review of production capacities among member countries. The discount of Russian Urals to Brent is estimated at $8-15 per barrel.
Gas Market: Europe Enters Winter with Lowest Stocks in 15 Years
November TTF futures rose on Monday to $1133 per thousand cubic meters — the highest level since December 2022. On Tuesday, prices corrected to around $1100, while the December contract traded at about €96 per MWh. This is nearly three times higher than the average level of last winter.
Key drivers of gas price increases include:
- Shortfall of LNG from the Persian Gulf. Supplies from the region, which provided about 20% of the world's liquefied gas supply, have drastically decreased; two Qatari liquefaction lines with a capacity of 12.8 million tons per year are offline for a period of three years.
- Low Storage Levels. EU storage facilities are approximately 74.9% full (around 80 billion cubic meters) — 14-15 percentage points below the five-year average. The European Commission has already lowered its target from 90% to 80% by December 1.
- Competition with Asia. European buyers are forced to overpay for spot LNG cargoes.
- Weather Factor. The cold snap has prompted several EU countries to start gas withdrawal earlier than usual.
Analysts anticipate price hikes to $1200-1400 per thousand cubic meters during peak months if a cold winter occurs.
Gas Exporting Countries Forum Summit in Moscow: Signals for the Global Gas Market
Vladimir Putin, speaking at the Gas Exporting Countries Forum summit, highlighted serious upheavals in the industry and linked the increase in costs for European consumers to the abandonment of Russian energy supplies. Key points included:
- Global gas demand could rise to 5.5 trillion cubic meters per year by mid-century, with international trade reaching 1.7 trillion;
- To stabilize the market, conflicts must cease and sanctions lifted;
- For producers, stability is more important than a twofold increase in spot prices;
- Russia is exploring the possibility of joint work with American partners in the Arctic.
Recently, the Kremlin expressed its willingness to discuss the resumption of gas supplies to Europe if interested buyers are available.
Oil Products and Refineries: Diesel Shortage and Regulation in Russia
The global oil products market remains significantly tighter than the crude oil market. Futures for heating oil and diesel fuel in the US are trading around $4.9 per gallon — more than double the level a year ago. The shortage of middle distillates supports refining margins and is beneficial for independent refineries with access to raw materials.
Russia has implemented a complete ban on the export of gasoline, diesel, and marine fuel until January 31, 2027. Retail gasoline prices have increased by approximately 20.5% since the beginning of the year, while diesel prices have risen by 13.4%. Data from mid-October indicates that the average price of gasoline has decreased to 78 rubles per liter; however, the situation remains fragile: refineries are operating at maximum capacity, planned maintenance has been postponed, and data on refining is classified.
Electric Power and Renewables: Energy Crisis Accelerates Energy Transition
High fossil fuel prices strengthen the economic arguments for renewable energy. By spring 2026, wind and solar generation globally is expected to surpass gas for the first time in history, contributing 22% of electricity generation compared to 20% from gas. In the US, a record 86 GW of new capacity is expected to come online this year, with over 90% of this attributed to solar, storage, and wind. Indonesia, South Korea, and several other countries are accelerating renewable energy development programs, considering them as tools for energy security and reducing dependence on LNG imports.
Coal: Asian Demand Supports Prices
High gas prices are prompting a shift of some energy systems in Northeast Asia to coal. Prices for thermal coal at the Australian Newcastle hub reached three-year highs in October, and the average price forecast for 2026 is around $130 per ton FOB. Meanwhile, the growth of renewables limits imports, with forecasts for coal purchases by China, India, and Japan for the current year being downgraded.
What’s Important for Investors: Key Indicators for the Week
- Negotiations on Iran — the main factor for oil and LNG; progress could alleviate some geopolitical premium.
- Weekly US oil inventory data — a signal of supply and demand balance.
- ECB Decision — impact on the euro and the dollar-denominated cost of gas.
- OPEC+ Meeting on November 1 — the baseline scenario expects no change in quotas.
- US Elections on November 3 — risk of changes in Washington's foreign policy direction.
- Weather and Gas Withdrawal from Storage in Europe — an indicator of winter gas and electricity prices.
The oil and gas market remains in a mode of high volatility, where diplomatic news and incidents in the Persian Gulf can shift prices by several percentage points within a single session. For oil, gas, and fuel companies, as well as investors in the commodity sector, the next two weeks will serve as a test of the sustainability of current price levels ahead of the heating season.
