Desk Note - US Edition
The narrative is now oversupply, not war | October 17, 2025
The week that shattered consensus.
What began Monday as a geopolitical market (gold surging on US-China trade tensions, oil holding war premium) ended Friday as a structural repricing. The war premium evaporated. Oversupply narratives took control. WTI –2.8% WoW to $57.64, Brent –2.6% to $61.33 (third consecutive weekly loss), gold +8% to $4,213. Energy underperformed every major asset class. When geopolitics can’t steepen the curve, only inventory draws or OPEC+ reversals will.
Oil closed a third weekly loss despite marginal Friday gains. WTI settled $57.64 (+38 bps session, -2.8% WoW), Brent $61.33 (+62 bps, -2.6% WoW), both at five-month lows. The war premium died mid-week. Gold hit $4,392 overnight before fading to $4,213 (–2.1% Friday, +8% WoW). Equities rallied (S&P +0.5% to 6,664, Nasdaq +0.5%) on banking-sector stabilization and Trump softening China rhetoric. But breadth stayed thin, VIX spiked to 28 intraday before closing 25.
The session was positioning flush, not conviction. Asia came in offered, no follow-through. Trump confirmed Putin talks “within two weeks” and called 100% China tariffs “unsustainable,” removing tail risks but confirming Russian crude normalization and demand destruction are live scenarios. October 25 bps done, December 97%. UST 10Y closed 4.01% after touching 3.93% intraday, compressing oil curve carry and signaling recession.
Cross-asset dislocation unresolved: gold at records, crude at five-month lows, equities rallying, rates pricing recession. Someone’s wrong. Historically, it’s been oil.
Energy — Curve Flattening into Oversupply
WTI $57.64, Brent $61.33. Friday bounce was short-cover from Wednesday’s puke at $57.29 WTI. Nov-Dec WTI spread $0.29/bbl, Brent $0.23. Backwardation flattening despite Ukraine drones offline 60% of gas production. If geopolitics can’t hold the curve steep, nothing will until inventories clear.
EIA Wednesday +3.5 Mbbl crude build vs. +0.3 consensus (423.8 Mbbl total, above five-year average). Cushing drew –703 kb but Gulf Coast accumulated. US production 13.636 Mbbl/d—records every week. OPEC+ added +137 kbd November matching October’s hike. Iraq compensation (130 kbd through Jan) and Kazakhstan backloading (650 kbd by June) offset nominal gains. Net flat effective supply while demand fades. IEA revised 2026 surplus to 4.0 Mbbl/d from 3.3 Mbbl prior, cutting demand growth to 710 kbd for 2025.
China September imports 11.5 Mbbl/d (+3.9% YoY), refinery throughput 15.15 Mbbl/d—highest since September 2023. Bearish read: Sinopec EDRI forecasts Chinese product demand peaks this year. Teapots exporting 70 mn tonnes refined products in 2025 vs. 54 mn in 2021. Imports displacing consumption. October Golden Week restocking complete; Q4 maintenance season begins.
Trump-Putin Budapest summit raises probability of Ukrainian ceasefire, lifting sanctions risk on +2.7 Mbbl/d Russian exports. Market pricing 50% chance of partial relief Q1 2026. Israel-Hamas ceasefire removes Middle East risk premium ($3-5/bbl). Street flow: elevated bids for Cushing and Gulf Coast storage. Oversupply expectations hardening.
Products
RBOB $1.8377/gal (+1.44% Friday, +0.95% WoW). BP Whiting, IN refinery fire (435 kbd capacity) trimmed gasoline output intraday, but structural picture bearish. Cracks <$9/bbl vs. WTI. Heating Oil $2.18/gal (+1.19% Friday). Distillates drew 4.53 Mbbl week ending Oct 10, leaving stocks ~7% below five-year average. But refinery throughput declines (9.4 Mbbl/d gasoline, 4.6 Mbbl/d distillate) cap crack recovery. Margins uninvestable; distillate tightness trade not trend.
Gas
Henry Hub $3.008/MMBtu (+2.4% Friday, –3.2% WoW). Production 106.4 bcfd October vs. 107.4 bcfd September. LNG feedgas 16.3 bcfd October, providing structural floor. Storage +80 bcf week ending Oct 3, inventories ~4% above normal. Forward weather warmer-than-normal through late October. Range $2.85-3.15 holds absent cold snap. TTF €32.5/MWh on EU storage deficits (83% vs. 93.2% last year) and Ukraine transit expiry risk Jan 1. Gas is the only credible energy upside into winter.
The Trade
Crude path lower until OPEC+ credibly cuts or China stimulus materializes. Gamma $55 WTI/$60 Brent magnetizing. Wednesday EIA retest (Oct 22) key. Another surprise build confirms $52-54 by Q1. Fade rallies $59 WTI/$63 Brent. Short RBOB vs. long ULSD (margin compression vs. scarcity). Gas range-trade; follow TTF €33.50 break on winter tightness. Monitor OPEC+ Nov 5 JMMC. Saudi tolerance for sub-$65 Brent finite.
Rates / Macro — Easing Path Meets Recession Reality
UST 10Y 4.01% (+4 bps Friday, –10 bps MoM), recovering from 3.93% intraday low as regional bank fears moderated. 2Y 3.45%, 30Y 4.60%. 2s10s steepened +2 bps to 56 bps. Moody’s dismissed systemic contagion risk, reversing Thursday’s flight-to-quality. Governors Bowman and Waller endorsed two additional 25 bps in 2025; Miran pushed for 50 bps October. Government shutdown day 17 delays data, but Powell Wednesday signaled “outlook unchanged since September”—easing bias intact.
Curve compresses oil carry, signals recession. Gold at records, crude at lows, rates pricing cuts—these coexist only if demand collapses.
DXY 98.45 (+0.12% Friday, +1.1% MoM). Intraday low 98.19 on Trump dovish China pivot, recovered on UST yield lift and month-end rebalancing. EUR/USD 1.1640 (flat). USD/JPY 150.59, consolidating after Takaichi Trade unwound on LDP coalition uncertainty. 10Y US-Japan yield spread broke 2.47% support—JPY strength targeting 149.05-148.55. Commodity FX lagged: CAD, NOK, MXN pressured by oil weakness.
Equities rallied but breadth weak. S&P 6,664, Dow 46,191, Nasdaq 22,680. Session high-low spread >1.2% on regional bank volatility, but Friday stabilized on Baird/Raymond James upgrades. Energy underperformed: XLE –0.7% on crude weakness. Breadth negative: 2,702 declining vs. 1,800 advancing. VIX spiked 28.41 intraday, closed 25.31 (–10% from Thursday peak)—speculative flush, not systemic stress.
OpEx distortions evident—dealer gamma flipped near 6,650 strike, compressing intraday range into close. CTA models neutral-bearish energy: 50-day MA breakdowns triggered deleveraging, estimated $10-15 bn notional crude unwound past two weeks. CFTC proxy shows energy HFs net-short first time since 2023—sentiment extreme.
The Setup into Next Week
Monday, Oct 22: China Q3 GDP, September industrial production, retail sales—critical demand signals.
Fourth Plenum Oct 20-23. Tuesday,
Oct 29: FOMC presser—watch Powell labor-market language.
Wednesday, Oct 22: EIA inventory (consensus +1.5 Mbbl crude)—another build confirms structural glut.
Oct 31 (tentative): Trump-Xi South Korea meeting.
Nov 5: OPEC+ JMMC—compliance review, Saudi rhetoric on price floor defense.
The Bottom Line
Friday was short-cover and OpEx noise. The structural picture: IEA’s 4 Mbbl/d 2026 surplus, OPEC+ unwind trajectory, Russia normalization risk, China demand peaking. Curve flattening, specs short, commercials adding shorts. Fed easing path and oil oversupply cannot coexist without demand catalyst or supply shock.
Fade crude rallies $59-60 WTI, $63-65 Brent.
Short RBOB vs. long ULSD.
Gas range-trade, follow TTF winter break.
Watch China Monday, EIA Wednesday, OPEC+ Nov 5.
Until barrels go offline or Beijing speaks, path of least resistance is lower.
Enjoy the weekend. Monday matters.
— Riko