Monthly Archives: May 2025

First Gain In Weeks

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Crude oil prices are set to close with a weekly gain for the first time in several weeks. A combination of geopolitical tensions and economic developments contributed to the move higher. The week began with a fairly steep sell-off after OPEC officially announced over the weekend that it would ramp up production in June by 400,000 barrels per day—nearly double what was initially agreed upon. At this pace, OPEC could return to pre-cut production levels by the end of November 2025, a full year ahead of schedule.  However, after a day of digestion, the market stabilized when shale producers in the U.S. announced immediate production cuts. Unlike in the past—when cutting production in the Permian Basin led to economic strain—today’s higher drilling costs and lower crude prices are leading Permian producers to prioritize margin over volume. Many companies are now content to pump less if they can maintain profitability through the downturn.

Tensions in the Middle East also fueled bullish sentiment. Trump announced a ceasefire agreement with the Houthis in Yemen, but no vessels have yet moved through the Red Sea due to lingering distrust. Meanwhile, Israel continued bombing Gaza and confirmed plans to fully occupy the region. In a major geopolitical surprise, India responded to a May 25 terrorist attack from Pakistan by striking six Pakistani cities. Pakistan retaliated by shooting down Indian fighter jets with both drones and its own aircraft. The escalation caught global attention, especially as Pakistan used Chinese-made jets and India used French-made ones. The episode raised alarms over China’s growing advancements in military aviation.

Sanctions remained in place against Iran, Venezuela, and Russia. The UK issued new sanctions against a Russian oligarch operating a fleet of 100 shadow vessels transporting crude oil to China. While the U.S., UK, and EU continue to ramp up pressure, oil flows from these sanctioned nations have persisted.

Trade tensions took a more optimistic turn this week. The U.S. and UK finalized a deal on Thursday—though the impact is more symbolic since the U.S. already runs a trade surplus with the UK. The bigger negotiations are yet to come. Both the U.S. and China have announced a willingness to lower tariffs in an effort to reach a deal, with talks set to begin this weekend in Switzerland. The announcement followed news that China experienced its largest drop in exports to the U.S. in April. In response, China continues to roll out monetary easing policies to maintain positive economic growth. India also said it is open to reducing tariffs to secure a deal with the U.S. I believe we’ll see a flurry of trade agreements being completed in the months ahead.

The EIA reported a crude inventory draw this week, driven mostly by gasoline production from US refiners in preparation for summer demand. Diesel inventories remain below the five-year average, but refiners are showing new discipline. They’ve signaled a willingness to limit output in order to maintain profitability, rather than chasing market share by selling gasoline and diesel at low profitability or a loss. That discipline is helping to create price stability across the refined product spectrum.

In local markets, diesel prices bottomed out in the Chicago spot market earlier this week before rebounding quickly to close out the week. I expect to see retail diesel prices move higher next week as a result. Gasoline prices continue to hold steady. Demand for gasoline hasn’t surged yet, and the Chicago market remains well-supplied. Diesel inventory remains somewhat tight, but conditions are improving and not currently affecting prices.

Propane prices also appear to have bottomed this week. Futures pricing saw some upward momentum as expectations for strong propane exports from the U.S. increase into the second half of 2025 and throughout 2026. Midwest propane inventories remain below the 10-year average, and we’ll need to build storage through the end of September to stay on track. If crude oil prices remain in the $60/barrel range, we should be able to close the gap and reach the five-year average by fall. I strongly recommend topping off your tank by the end of August and locking in propane contracts for the upcoming heating season. We’ll be releasing next year’s contract prices within the next two weeks—stay tuned.

As always, if you have any questions, comments, or concerns, please don’t hesitate to give us a call. Have a great weekend!

Best regards,

Jon Crawford

Global Crude Oil Price War Brewing?

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Happy Friday!

This week brought a more tempered level of volatility in the crude oil markets compared to prior weeks, but there was still no shortage of impactful news. The biggest driver of crude oil prices continues to be the evolving trade relationship between the United States and China, along with economic data released from both countries.  China reported stronger-than-expected GDP growth for Q1 of 2025, showing a 5.4% year-over-year increase. On the surface, this appeared to be a bullish signal for oil demand, especially considering China’s status as one of the world’s largest crude importers. However, the story beneath the headline was less encouraging. Many analysts attributed the growth to a temporary “pre-tariff” export rush. Ongoing deflationary pressure, weak domestic consumption, and a shaky property sector still threaten China’s ability to sustain growth through the rest of the year.  In contrast, the U.S. economy contracted by 0.3% in Q1, marking the first quarterly decline since 2022. The contraction was largely driven by a surge in imports ahead of anticipated tariffs, combined with slowing consumer spending and government cutbacks. Although one quarter of negative GDP growth does not technically define a recession, many economists raised red flags. The IMF pegged the probability of a U.S. recession at 40%, and J.P. Morgan raised their call to 60%.

However, things shifted slightly on May 2 when China’s Ministry of Commerce publicly acknowledged that they are assessing proposals from the U.S. to reopen trade talks. This was the first recognition from China that negotiations might be on the table since the latest escalation in tariffs. According to officials, the U.S. has expressed interest in dialogue, and China is evaluating the sincerity of these efforts. But Beijing also made it clear: the U.S. must first remove unilateral tariff hikes before any formal talks can begin. The statement was seen as an olive branch, but it came with conditions. While the path forward is uncertain, this is the most constructive tone we’ve heard in weeks.

In terms of supply-side news, crude oil prices were under pressure this week due to a 3.76 million barrel build in U.S. crude inventories. OPEC+ signaled that they may move to increase production again in June. Saudi Arabia specifically indicated that they are comfortable with lower prices and may support a faster pace of output increases. That comment caused a quick drop in oil prices as some traders began to price in the possibility of a price war. OPEC+ will meet next week, so we should have more clarity then.  Then, in a surprise geopolitical turn, President Trump announced on May 1 that secondary sanctions would be applied to any country or company purchasing Iranian crude or petrochemical products. The threat sent crude oil prices sharply higher mid-week. The market’s concern is that this could disrupt a significant portion of Iranian crude going to China, which remains Iran’s top customer. Traders reacted quickly, and the spike reminded everyone how sensitive the energy markets remain to any shifts in foreign policy or geopolitical risk.

In local markets, the CME spot market moved slightly lower along with crude oil. Gasoline and diesel supplies remain tight across much of the Midwest. Although refinery maintenance is starting to wind down, the supply chain is still trying to rebalance. I don’t expect much movement at the pump next week. If anything, we could see a small drop in retail prices as supply stabilizes.

Propane prices in the spot market also moved a bit lower this week. However, the forward curve has remained steady. Midwest inventories are still running below the five-year average, and if U.S. oil companies slow drilling to defend price, propane price could begin to decouple from crude oil. On top of that, lower inventories in the Midwest could increase our dependence on Canadian imports. And with trade tensions still brewing, the threat of tariffs on Canadian propane remains real. If tariffs are imposed, we could see a major price increase later this year. Right now, the current retail price of propane holds good value. Although we could see a small dip, I don’t expect a dramatic drop unless WTI crude drops below $55/barrel. Heating contracts for next season will be available soon. I recommend topping off your tank in the next few months and locking in some propane fixed-price gallons for next winter, especially with ongoing uncertainty around trade with Canada.

As always, if you have any questions, comments, or concerns, please feel free to give us a call. Have a great weekend!

Best regards,

Jon Crawford