Analysts Explain Energy ‘Bloodbath’ | Rigzone

In a statement sent to Rigzone on Monday, Naeem Aslam, CIO of Zaye Capital Markets, said energy’s “bloodbath” today is a “classic risk-premium unwind”.

“Trump’s ‘serious talks’ with Iran vaporized the geopolitical froth, driving oil around five percent lower, while a sudden flip to milder U.S. weather forecasts gut-punched natgas 16 percent as heating demand dreams evaporate,” Aslam said.

“Short-term relief rally gone wrong – welcome back to oversupply reality,” he added.

Art Hogan, Chief Market Strategist at B. Riley Wealth, highlighted to Rigzone that oil prices are heading for the steepest single-session decline in more than six months “after U.S. President Donald Trump ⁠said Iran was ‘seriously talking’ with Washington, signaling de-escalation with an OPEC member”.

“The crude oil market is interpreting this as an encouraging step back from confrontation, easing ‍the geopolitical risk premium built into the price during last week’s rally ‌and prompting a bout of profit-taking,” he added.

Hogan told Rigzone that this is flowing through to the whole energy complex.

“The pullback has also been reinforced by renewed strength in the U.S. dollar, which typically makes dollar-denominated oil more expensive for non-U.S. buyers, further weighing on prices,” he said.

Phil Flynn, a senior market analyst at the PRICE Futures Group, told Rigzone that natural gas prices are getting hit “as the temperatures are going to warm up and there’s some questions about the return of the polar vortex in February”.

Looking at the oil price, Flynn said the “market is coming down on the fact that there was no attack on Iran over the weekend, despite market chatter on Friday”.

“Because we got through the weekend with no attack we’re taking a lot of risk premium out of the price,” he said.

“On top of that we have risk-off and a lot of commodities … are lightening up positions,” he continued.  

In crude market commentary sent to Rigzone today, Neil Crosby, Oil Analytics AVP at Sparta Commodities, warned that “headline risk remains in place this week as we wait to see whether negotiation or confrontation will dominate the narrative between U.S. and Iran”.

Ole Hansen, Saxo Bank A/S Head of Commodity Strategy, highlighted in a press note sent to Rigzone on Friday that, “in crude oil, attention has once again turned to geopolitics”.

“Renewed concerns about a potential U.S. attack on Iran lifted fears of Middle East supply disruptions, briefly pushing Brent crude back above $70 per barrel and forcing a reassessment among traders who entered the year positioned for prices to fall into the $50s on expectations of a supply glut,” Hansen said.

“Those fears have faded following a month of disruptions and could disappear entirely if Middle Eastern barrels were to become unavailable, even briefly,” he warned.

Hansen went on to state in the note that “the rally served as a reminder that, despite ample spare capacity elsewhere and rising non-OPEC supply, oil prices remain highly sensitive to geopolitical tail risks, while also benefiting from their role as a liquid and easily accessible investment vehicle amid the current focus on demand for tangible hard assets”.

In a HSBC research note sent to Rigzone on Friday, HSBC analysts, including Global Oil and Gas Analyst Sadnan Ali, highlighted that, “over the past two weeks, gas prices in both Europe and the U.S. have climbed sharply, primarily due to the impact of extreme winter weather conditions”.

“We flagged the risk of weather-driven volatility last month … Price volatility has been amplified by speculative activity, with traders unwinding record-high short positions in TTF and shifting to net long positions in Henry Hub,” Ali said in the note.

“In the U.S., an Arctic blast has boosted heating demand, while wellhead freeze-offs have disrupted c10 percent of gas production. Adverse weather has limited solar and wind power generation, increasing gas-fired power demand by 15 percent over the past 10 days,” he added.

“Henry Hub soared by c140 percent from $3.1 per million British thermal units (MMBtu) on 19 January to $7.5 per MMBtu on 28 January, levels last seen in 2022,” he continued.

“Regional hubs experienced even sharper rallies, with Opal (Rockies), Chicago, and New York reaching $20, $70, and $147 per MMBtu, respectively,” he said.

Ali went on to point out in that note that, “as weather conditions have begun to normalize and the February contract expired, the Henry Hub March contract has settled back to around $4 per MMBtu, in line with our full-year 2026 assumption”.

To contact the author, email andreas.exarheas@rigzone.com