Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Natural Gas Is Quietly Outperforming Oil in July 2026
Transcript
- Lucas: So everyone's watching oil this week — Brent touching $94, the Red Sea headlines, Google and Tesla earnings stealing the afternoon. But the quietest rally in the commodity complex right now might actually be natural gas. Luna: Quiet is the word. I looked at the screen before we sat down — Henry Hub futures are up about 11 percent in the last two weeks. That's way more than crude. Lucas: Right. And the interesting part is that natural gas isn't really following oil's playbook. Oil is getting a pure geopolitical risk premium — Houthi attacks in the southern Red Sea, the Strait of Hormuz chatter, Saudi output cuts that are still constraining supply. That's all very headline-driven. Luna: Meanwhile gas is moving on something more structural. Summer heat is part of it — air conditioning demand spikes — but that's seasonal, not surprising. Lucas: Exactly. The real driver is that U.S. LNG export capacity keeps growing. We're sending more gas overseas than ever, especially to Europe, and that's tightening the domestic market even when production is fairly robust. In July 2026, you're seeing that play out in the storage numbers — injections have been below the five-year average for three consecutive weeks. Luna: So the market is basically repricing to account for the fact that the U.S. is no longer a standalone gas market. We're globally linked now. Lucas: Bingo. And the interesting thing is that this trend predates the current heat wave. LNG export capacity has been ramping up steadily since 2024. What's changed is that European storage is filling slower this year — they had a colder spring, they drew down more — so they're buying more U.S. cargoes in the spot market right now. Luna: That's pulling Henry Hub higher even when domestic demand is just normal summer peak. And the futures curve is responding — the backwardation in the front months is getting steeper. Lucas: Right. The front-month contract is trading at a premium to the winter contracts, which is unusual for July. Usually you see the opposite — the market builds in a winter heating premium. But this year, immediate supply tightness is overwhelming that seasonal pattern. Luna: Let's talk about crude for a second, because it's still the heavyweight. Brent at $93.89 as of tonight — up 6.6 percent in five days. That's a big move. Lucas: It is, but I'd argue the move is narrower than the headline suggests. The five-day gain on Brent is almost entirely from Monday and Tuesday this week, when the Houthi story escalated. Before that, crude was actually drifting lower despite the Saudi cuts. The market was starting to price in demand softening. Luna: So the geopolitical risk premium is real, but it's fragile. If the Red Sea situation de-escalates — even temporarily — you could see Brent drop $4 or $5 pretty quickly. Lucas: Absolutely. And you see that in the options market — the skew for out-of-the-money puts is actually higher now than for calls. That tells you traders are hedging against a downside crash, not betting on a continued rally. They don't trust the geopolitical bid. Luna: Interesting. Meanwhile the energy equities are telling a slightly different story. XLE is up 3.8 percent in five days, but that's less than Brent's move. And XOM is up 5.8 percent, so the majors are outperforming the sector ETF. Lucas: That's because the integrated majors have refining and chemicals exposure that cushions them when crude spikes. The pure-play producers in XOP are up 6.1 percent — that's closer to the crude move. But even there, the multiples aren't expanding much. It's a price rally, not a sentiment rally. Luna: So the equity market is skeptical. They're saying 'we'll believe the demand story when we see it'. Lucas: Exactly. And I think that skepticism is healthy. Because if you look at the economic indicators — CPI came in at 332.6 in June, down from 333.98. That's disinflation. Core CPI basically flat. The ten-year breakeven is at 2.26, barely budging. The market is not pricing in an oil-driven inflation spiral. Luna: So the Fed isn't going to react to this oil move. They're looking at core PCE, which is still creeping up — 130.1 in May from 129.67 — but that's services-driven, not energy. So no rate response. Lucas: Right. And that means the commodity rally is happening in a vacuum in some ways — it's not being amplified or suppressed by monetary policy. It's just pure supply-demand and geopolitics. Which is actually a cleaner environment for traders, even if it's volatile. Luna: Let's circle back to natural gas for a minute, because I think that's the story that has more room to run. Henry Hub at $2.94 is still historically low. The ten-year average is around $3.20. So even after this rally, we're below the long-run mean. Lucas: That's the key point. Gas has been so depressed for so long — remember, we were below $2 in early 2024 — that the structural shift toward LNG exports is only now starting to be priced in. The market has been conditioned for years to think of gas as abundant and cheap. But the export terminals have changed the math. Luna: And the production side is also responding. The rig count for natural gas has actually been declining since late 2025. Producers got burned by low prices, so they're disciplined. They're not rushing to drill more even as prices rise. Lucas: That's the classic shale playbook now — capital discipline over volume. So you have supply growing slowly, demand growing steadily from LNG, and a seasonal tailwind from summer cooling. The setup for gas is actually more bullish than for oil in the second half of 2026. Luna: I agree. And if we get an early winter — even a normal one — the storage deficit could become a real issue by November. Lucas: Before we wrap, I want to touch on one more commodity that's been flying under the radar: silver. It's up 7 percent in five days, trading at $59.96. That's a bigger move than gold's 3.1 percent. Luna: Silver is interesting because it's both a monetary metal and an industrial metal. So when gold rallies on geopolitical uncertainty, silver usually tags along. But silver's industrial demand — solar panels, electronics, EVs — gives it an extra kick when the growth outlook improves. Lucas: Right now, I think silver is benefiting from both. Gold at $4,137 is pulling the precious metals complex higher. But silver is also catching a bid from the industrial side — especially with copper at $6.48, up 4.2 percent in five days. The whole base metals complex is firming up. Luna: And that's the opposite of what you'd expect if the economy were rolling over. Copper and silver rallying together suggests the market is pricing in resilient growth, not recession. Lucas: Exactly. It's a pro-cyclical signal hiding inside a geopolitical rally. And I think that's the big picture for commodities right now: you've got crosscurrents — geopolitical risk, structural supply changes, and a still-solid economy — that are creating opportunities, but only if you look past the obvious headlines. Luna: That's the kind of insight that makes this show worth doing. And speaking of that — if walking through the economy with us has made something click for you, we want to keep this podcast ad-free and accessible to everyone. Listener support on Buy Me a Coffee is what makes that possible. Lucas: It's true. We don't run sponsors, we don't do mid-rolls. It's just us and the data. If you find value in that, you can toss a few bucks in the jar at buy me a coffee dot com slash fexingo. No pressure, no perks — just helps us keep the lights on. Luna: And it genuinely lets us stay independent. We don't have to tailor the conversation for anyone but you. Lucas: Alright, back to the screen. So the big call I'm watching is natural gas versus crude oil. If I had to pick one commodity to hold through August, it would be gas. The crude rally is headline-dependent. The gas rally is structural. That's a more durable bet. Luna: I'd add that the trade isn't just long gas. It's also watching the spread between Brent and WTI — that's blown out again with the Red Sea risk. WTI is at $86.56, Brent at $93.89. That $7-plus spread is a signal about global supply chains, not just crude. Lucas: Great point. And that spread itself could be a trade — if you think the geopolitical risk is overstated, you'd short the spread. But that's a conversation for another episode. For today, the takeaway is: don't get blinded by oil's fireworks. The real story this week might be the quiet rally in gas. Luna: And silver. Don't sleep on silver. Lucas: Never sleep on silver. Alright, that's our show. We'll see you next time.