Happy Friday!
Crude oil prices saw a modest increase this week, despite a market still dealing with a lot of uncertainty on both the supply and demand sides. The week started with serious supply disruptions in Iraqi Kurdistan, where drone attacks reportedly tied to Iran-backed militias knocked out nearly half of the region’s production for four consecutive days. At the same time, the European Union rolled out its 18th round of sanctions against Russia. But enforcement is still questionable, and so far, these actions haven’t had the teeth to seriously dent Russia’s export ability. Meanwhile, President Trump threw in another wrinkle by giving Russia a 50-day deadline to resolve the war in Ukraine, threatening secondary sanctions on countries still buying Russian oil if a peace deal isn’t reached. The deadline gave the market some breathing room short-term, but traders are still uneasy over what could come next.
On the demand side, China reported a slowdown in economic growth in Q2, and the outlook for the second half isn’t looking too hot. Exports are dropping and consumer confidence is shaky. Since China makes up over 16% of global crude demand, their slowdown directly affects how oil trades. The concern is that even if supply tightens, slowing Chinese demand could soften prices, especially in the back half of the year. Tariffs continue to be a wildcard. The administration announced new 25% tariffs on imports from Japan and South Korea, with more likely on the way for Canada, Mexico, and the EU. Energy products will most likely be excluded, but the uncertainty around broader global growth and trade relationships continues to hang over the market. OPEC’s long-term view is that demand will keep climbing through 2050, with projections hitting 123 million barrels per day. The IEA doesn’t share the same opinions, calling for demand to slow and only hit around 104.4 million barrels per day next year. The difference in these forecasts continues to divide the industry on where we’re really headed. Fuel consumption in the United States remains strong, especially in aviation and diesel. With summer driving season in full swing, demand is supporting higher gasoline consumption as well as higher global crude oil consumption. In addition, drilling activities in the US are slowing down, supporting higher prices.
All-in-all, crude oil prices seem to be finding some support to move higher. Diesel prices are climbing at a higher rate than gasoline. My hope is that as summer demand decreases, we start to see inventory builds in diesel causing lower prices and higher supply going into the harvest season.
In local news, Chicago spot prices of gasoline continue to be weak in-line with other spot markets. Even though demand for gasoline has been decent, supplies are outweighing demand keeping prices in check. I don’t expect to see much movement on gasoline retail prices at the pump. Diesel prices continue to whipsaw 20 cents back and forth. Diesel prices are very volatile. Prices were pushing back to recent lows and then climbed right back up. I expect to see diesel retail prices at the pump to have high spreads depending on when retailers purchased fuel.
Propane spot prices fell this week due to another surprise massive build in inventory. I truly believed that propane prices had found a floor. Due to recent activity, we might see our retail price move lower. I am stunned at the arbitrage between propane price and crude oil price. I highly recommend taking advantage of the recent prices and contracting some heating gallons for the next season.
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