Good morning!

Happy Friday the 13th.  Crude oil markets saw one of the most volatile weeks in years following a major military escalation in the Middle East. In the early hours of June 13, Israel launched its largest attack on Iran since the Iran-Iraq War, codenamed “Operation Rising Lion.” The operation involved over 200 aircraft dropping more than 330 munitions across roughly 100 targets throughout Iran. The strikes focused on nuclear facilities, key military infrastructure, and high-level leadership sites. Reports confirmed that various nuclear enrichment locations, air defense systems, IRGC headquarters, and several military leaders and nuclear scientists were all targeted and hit.  Iran wasted no time in responding, launching more than 100 drones toward Israel. Supreme Leader Ayatollah Ali Khamenei issued a stern warning that Israel would face a “bitter and painful” response. Despite the intense military exchange, Iranian state media announced that oil production and operations remained unaffected. The country’s largest refinery, the 700,000 barrel-per-day Abadan plant, reportedly continued running at full capacity without disruption.  The timing of the Israeli operation is especially notable, coming just days ahead of planned nuclear negotiations between the U.S. and Iran in Oman. Two U.S. officials said the Trump administration had told Israel that any strike would be a “solo mission” and that the U.S. would not provide direct military support. Following the attacks, Trump issued a strong warning to Iran, stating that if another wave of Israeli strikes occurred, they would be “even more brutal,” and he encouraged Iran to strike a deal “before there is nothing left.”

The impact on oil markets was immediate. Brent crude surged as much as 13% in early trading, briefly topping $78 per barrel, while WTI jumped over 8%, hitting $73.61 per barrel. This was the largest single-day percentage gain in years. Analysts attributed the spike to both immediate supply concerns and broader fears of escalation across the region. The Middle East is responsible for roughly one-third of global oil production, and markets are on edge over any threat to the Strait of Hormuz, where nearly 20% of the world’s crude oil is transported. If Iran were to block the Strait, many analysts predict oil could surge past $100 per barrel. That said, both Saudi Arabia and the UAE have significant spare capacity and could offset a shortfall in Iranian exports relatively quickly, within about 30 days.

Amid all of this, trade talks between the U.S. and China continued to move in a positive direction. The two countries reached a major trade framework agreement after meetings in London on June 9 and 10. This follows earlier progress made in Geneva last month. One of the key items addressed was China’s export of rare earth minerals and magnets to the U.S., a topic that has been front and center in negotiations. The announcement of the deal helped support oil prices earlier in the week, and the U.S. continues to push forward with trade discussions with the UK, India, Japan, and the EU.

However, not all news this week was bullish for crude oil prices.  Another factor that played into oil price movements this week was the strength of the U.S. dollar. A strong dollar usually keeps oil prices lower, and this week was no exception. A better-than-expected 30-year treasury auction drove traders into the dollar as a safe haven amid mounting geopolitical risk. This helped limit the upside for crude prices before the Israel-Iran situation unfolded.

Meanwhile, the domestic supply situation in the U.S. remains a bit bullish. The EIA reported another drawdown of 1.7 million barrels from crude oil inventories. Diesel remains a little tight, with inventories still sitting at 17% below the five-year average.  However, I am not concerned about major supply disruptions as we move through summer and into the harvest season.  Although supply logistics will be an issue in the fall, we will still be able to handle harvest.

With so much news this week, I think it’s important to take a step back and look at the bigger picture. Yes, we saw a big move in crude oil prices, and yes, geopolitical risk is very real. But when we strip it all down, the fundamentals of supply and demand still remain fairly balanced. There is enough crude oil in the world to meet demand, and while shipping disruptions could happen, they should likely be short-lived. I believe this price surge is temporary, and unless there is another major escalation, we’ll see WTI settle back into the $60–$65 per barrel range.

In local markets, the Chicago spot market continues to be well supplied and is trading below the Group, offering great value for our customers. Gasoline prices have stayed fairly stable, but diesel prices have been climbing due to tighter inventories and the recent jump in crude oil price. With the spike in oil today, I expect to see both diesel and gasoline prices at the pump move higher in the coming days.

Propane is also being impacted by the increase in oil price, although the price rise has been modest so far. We are doing our best to hold current retail prices. With crude oil running hot right now, I strongly recommend filling up your propane tank at the current rate. We also encourage customers to contract gallons now for the upcoming winter season. Contracts are available and offer excellent value considering the current environment.

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

Best regards,

Jon Crawford