Glut Obsessed. The Energy Report 09/10/2025

I am starting to worry a little bit about the global oil reporting agencies because it seems they’ve come down with a bad case of oil glut obsession. First, it was the International Energy Agency— and then yesterday’s news came that the Bureau of Labor Statistics had to admit that the labor market “was materially weaker than the BLS initially estimated in the year to March 2025, the most significant revision since 2008 but still not as bad as the International Energy Agency that had to revise over 10 years of data to admit that they underreported oil demand for just for over a decade or so. In fact today JODI reported that gasoline demand rose by 1.05 mb/d in June and Diesel demand was up by 11.7 kb/d m/m.

Now it is the Energy Information Administration (EIA) who in their Short-Term Energy Outlook are predicting a price crash in Brent Crude Oil Prices. The EIA is warning that Brent crude oil prices could drop from $68 per barrel in August to an average of $59 in the fourth quarter of 2025, and even suggesting prices could hit $50 per barrel in early 2026. These predictions rest heavily on the assumption of persistent and significant oil inventory builds mainly based on OPEC recent production increase and overall pessimism about the global economy and unwavering optimism about rising US oil output even as rig counts fall.

The EIA goes on to say that global stocks will increase by over 2 million barrels per day from the third quarter of 2025 through the first quarter of 2026, supposedly because of OPEC+ ramping up output. Yet how does that happen when the OPEC production Increase is negligible assuming we see compensation cuts at the same time from over producers? The EIA links in the OPEC report but that shows that their latest production hike—only 137,000 barrels a day starting in October.

Production is currently lower than the level of 550,000 barrels per day recorded in September and August, indicating a limited supply. Reports indicate that OPEC is about 650,000 barrels per day below its maximum sustainable capacity, which could restrict its options for additional production cuts. On top of that, OPEC’s announced increase is effectively a cut, as compensation reductions from overproducers—Kazakhstan, Iraq, Russia, UAE, Kuwait, and Oman—require significant output slashes between August 2025 and June 2026, ranging from 190,000 to 829,000 barrels per day. Kazakhstan faces the largest reduction due to excessive production, followed by Iraq, Russia, and the UAE, while Saudi Arabia and Algeria remain unaffected.

So how does the EIA see builds of over 2 million barrels a day, if they consider that the OPEC increase is not as big as they suggest? Such forecasts deserve a healthy dose of skepticism. The oil market has repeatedly defied expectations, with past projections often missing the mark amid shifting demand patterns and geopolitical surprises. Even the anticipated low prices are expected, according to the EIA, to force a cut in supply from OPEC+ and some non-OPEC producers, eventually slowing inventory growth later in 2026.

So now the Energy Information Administration is predicting that OPEC is going to have to reverse the so-called production increase that really isn’t an increase, this is going to get very complicated and as you can see it doesn’t make a lot of sense. 

The other thing that doesn’t make sense is the fact that the Energy Information Administration is continuing to suggest that US energy producers are going to continue to raise oil output even though we’re seeing signs in the shale patch that there’s been a big pullback. 

Let’s talk about what the EIA says about gasoline prices. Thanks to these price drops for oil, what people actually shell out for gas—compared to their disposable income—is heading toward the lowest level we’ve seen since 2005 (and I’m not counting the weirdness of 2020). The EIA is looking  at less than 2% of disposable income spent on gasoline this year, which is down from that old ten-year average of about 2.4%. That’s real savings at the pump.

Now, here’s the kicker: for the first time in ages, the government’s Short-Term Energy Outlook sees U.S. gasoline consumption ticking up next year. Why? Turns out there are more folks of working age than they thought and, surprise, those lower prices are getting people out on the road more than the experts previously predicted. So—cheaper prices, more drivers, and an economy that’s not done surprising us just yet. Unless of course we get a adjustment.

Of course the outlook for gasoline prices in California is getting more bleak, and California leadership is getting desperate. According to reports, the California government is seeking to give Valero millions of dollars to keep operating the refinery that they want to shut down. Apparently the California government dislikes refineries—except when they don’t have refineries. Now, with new gasoline taxes imposed by Governor Gavin Newsom and the possibility that shutting refineries could push gasoline prices in California to perhaps over $10 a gallon in the future, even the most anti–fossil fuel governor in the country is pausing to reconsider. According to Bloomberg News, California may allocate between $80 million and $200 million to Valero, potentially designated for routine maintenance at a San Francisco area plant. Under this agreement, the state would compensate Valero for continuing operations at its refinery. Governor Newsom, as reported by Bloomberg, has adopted a new approach with refiners and is urging regulators to collaborate with industry to ensure stable fuel supplies within the state.

Yet the issue with Governor Newsom is whether the refining industry can trust him. Oh sure, now he needs them, but this is the same Governor that helped run Chevron out of the state. Governor Newsom has maligned the California refining industry, calling them a looting, profit-driven sector that harms public health, the environment, and consumers through price gouging and deception. Of course these claims are baseless, harmful, and obviously short-sighted. So, Governor Newsom now wants to give millions of dollars to a refinery that is, by his own words, polluting and profit-driven—doesn’t he care about the environment anymore?

In fact, Governor Newsom has publicly stated that for more than 50 years, big oil companies have been lying to the public, covering up what they’ve long known: that the fossil fuels they produce are dangerous for our planet. He’s claimed they’re responsible for billions of dollars in damages, wildfires wiping out entire communities, toxic smoke clogging our air, deadly heat waves, record-breaking droughts, and parched California wells.

Of course some of these accusations are questionable. It’s well-known that one of the factors behind California’s worsening wildfires is poor forest management—an issue tied to Governor Newsom’s own administration. And those parched wells? They might have been replenished if the governor had allowed more water allocations. Yet now he needs the oil companies to rescue the state from economic hardship and spare California drivers from $10-a-gallon gasoline. Good luck, Governor; if I were in the oil and gas industry, I’d be very skeptical about trusting you.

In fact as early as October 2024, Gavin Newsom signed a bill to increase oversight of refinery maintenance and require minimum fuel inventories, which caused many refineries to leave the state. Gavin Newsom publicly proclaimed that the California refinery industry “has been screwing you, they have been screwing you for years and years and years—there’s no other way to put it.” He even accused scheduled maintenance of being a scheme to manipulate markets. Of course, in California, we famously had a major refinery fire that was probably caused by refiners putting off maintenance to meet demand in the state.

The actions of Governor Newsom have led to the closure of Phillips 66 and Valero facilities and have caused Chevron to leave its home state of California to relocate elsewhere. Now he wants to buy back Valero’s promise to keep the refinery open so he can try to save his diminishing political aspirations. Be careful, refinery industry—be very careful when dealing with Governor Newsom.

Yesterday the crack spreads did get a little relief after the American Petroleum Institute reported a bigger than expected 1.5-million-barrel increase in distillate inventories. They also reported that crude supplies rose by 1.25 million barrels and gasoline inventories were up by 329,000 barrels. The market is going to await the Energy Information Administration weekly report to see if it’s towards the increase in diesel supplies that are still very much a concern as we head into winter. Call me – Phil Flynn – at 888-935-6487 – to learn more about crack spreads. They’re a lot of fun!

Now the question is natural gas inventory is going to be a supply issue going into winter. EBW Analytics say that in natural gas we are seeing modest supportive fundamental shifts for natural gas facilitated the extension of bullish momentum and supportive technicals to lift the October contract to as high as $3.198 intraday Monday before ultimately retreating lower. Fundamentally, Plaquemines LNG ramped to new highs, supply readings hinted lower, and less-bearish September weather added 12 CDDS.  Nonetheless, the near-term battle between elevated—and rising—storage levels is pitted against a supportive technical outlook. While near-term caution is warranted, October has scaled repeated technical tests in recent weeks.   In the medium term, meanwhile, weather headwinds may fade with October forecasts 19 gHDDS chillier than the five-year average and steep contango likely restraining production. Sinking storage surpluses suggest likely upside for NYMEX futures—but Lower 48 storage may still reach or exceed 3,900 Bcf. Want to talk natural gas? Call Phil Flynn at 888-935-6487! And you can get my Daily Trade Levels to get entry, either and stop points on all major futures markets.

Regarding the weather outlook for natural gas, Fox Weather notes that although September 10 marks the peak of the Atlantic hurricane season, there are currently no active systems in the region. FOX Weather Hurricane Specialist Bryan Norcross indicates conditions could change in the coming weeks. Fox Weather reports that According to a discussion issued Tuesday by the experts at Colorado State University (CSU), dry air and increased wind shear coupled with sinking air over Africa is likely leading to a quiet stretch of weather in the tropical Atlantic. “We do anticipate the season picking up, however, given that large-scale conditions appear to become more tropical cyclone-favorable later in September,” CSU experts wrote in the report.

Make sure you download the Fox Weather app to keep up with the latest on those storm possibilities. Stay tuned to the Fox Business Network! Invested in you!

Call to sign up for the Daily Trade Levels and to open your account with Phil Flynn at 888-935-6487 or email me at pflynn@pricegroup.com.