Oil and gas markets are expected to remain volatile due to geopolitical risks, despite predictions of a well-supplied energy market by 2026. Non-OPEC countries like the United States, Brazil, and Guyana are projected to increase supply, while new LNG capacity from the U.S. and Qatar will also contribute to lower prices.
Geopolitical uncertainties, such as potential conflicts involving Iran and tariff disputes between the U.S. and EU over Greenland, are causing market volatility. However, U.S.-EU energy flows, particularly LNG, are likely to remain stable due to mutual dependencies. Europe heavily relies on U.S. energy supplies, and after losing China as a major buyer, the U.S. views Europe as a key LNG market.
Market Fundamentals And Geopolitical Fluctuations
Overall, while underlying market fundamentals suggest lower oil and gas prices in 2026 compared to 2025, geopolitical tensions could create fluctuations. OPEC+ is currently pausing further output increases to prevent surplus issues, underscoring the intricate global energy dynamics. The interconnected energy relationship between the EU and U.S. reduces the likelihood of either party disrupting LNG flows as part of any tariff conflict.
The fundamental outlook for 2026 points to a well-supplied energy market, which suggests a general downward pressure on prices. We see growing output from the Americas and new LNG capacity from the US and Qatar creating a potential surplus. This backdrop favors strategies that benefit from lower or range-bound prices, such as selling call options on any significant price spikes.
However, ongoing geopolitical tensions are creating considerable short-term volatility, complicating this simple view. Recent heated discussions over Greenland tariffs saw the oil volatility index (OVX) jump 4% just last week, and any new developments regarding Iran could cause immediate price swings. For the coming weeks, traders should consider using options to trade this volatility, as sudden news events can easily override the fundamental picture.
We believe that despite the tariff threats, the deep energy connection between the US and EU makes it highly unlikely that LNG flows will be targeted. Europe’s reliance on US gas has only increased since we saw record imports in 2025, while the US needs the European market as a primary destination. Therefore, any fear-driven dips in Henry Hub natural gas futures related to tariff news could present attractive buying opportunities.
Adapting Trading Strategies
Given these conflicting signals, a flexible approach is necessary for the weeks ahead. The broader trend may be lower, but the path will be rocky, with implied volatility on front-month crude contracts now sitting near a seven-month high. This suggests that strategies like selling strangles to collect high premiums could be effective, provided traders manage risk carefully against a major geopolitical escalation.
