Happy Friday!
Crude oil prices are set to close lower again this week, holding near the lowest levels seen in the past year. Despite a steady flow of geopolitical headlines, the market continues to shrug them off as oversupply remains the dominant force shaping price action. The U.S. plans to seize additional oil tankers tied to Venezuela, and Marines recently landed on nearby islands as tensions escalate. Even so, the market reaction has been muted. Venezuela exports less than one million barrels per day, and with global supply already heavy, traders see little reason to bid prices higher.
Russia is facing mounting pressure as revenues from refined products may fall to their lowest level since August 2020. Sanctions are starting to bite more than they have in the past, limiting Russia’s ability to reroute barrels. That revenue squeeze could give Ukraine additional leverage at the negotiating table, especially as Ukraine continues targeting Russia’s shadow fleet. Another shadow tanker was attacked this week, bringing the total to five over the past few weeks. Ukraine is clearly using energy infrastructure and oil assets as leverage, even discussing the use of Russian oil assets to help fund Ukraine’s reconstruction. Ukraine is also weighing a referendum on the Donbas region as part of a potential peace framework. The proposal would require the region to become a demilitarized zone, though there is no guarantee such a vote would permanently resolve the conflict. Meanwhile, Russia appears close to capturing Pokrovsk, a major logistics hub for Ukraine. Losing the city could weaken Ukraine’s negotiating position and likely prolong the conflict.
Global tensions continue to rise in Asia. After China reportedly aimed radar systems at Japanese aircraft, the U.S. responded by flying nuclear-capable bombers alongside Japanese fighters over the Sea of Japan. China has also conducted additional air missions near Japan, further escalating tensions. Any disruption in the region would have major implications for global trade and energy markets, though for now prices remain anchored by fundamentals. Again, the IEA trimmed its forecast for oversupply next year, citing the possibility of stronger demand, but the market has largely dismissed the revision. With forecasts swinging back and forth so frequently, traders remain focused on what is visible today: large volumes of oil still floating at sea.
On the demand side, India continues to shift its energy mix. While still one of the world’s largest crude importers, India is now producing record levels of wind energy, weighing on long-term demand expectations. China’s consumer prices rose at the fastest pace in more than a year, driven by food costs, but broader economic growth remains sluggish, limiting oil consumption. Weak Chinese economic growth and already-high inventories are limiting additional imports, even though China just posted its largest crude purchases since late 2023. India and Russia met again this week, with India continuing to buy discounted Russian barrels, though volumes have dropped sharply from roughly 1.7 million barrels per day to around 600,000. Some market participants are even debating whether Russian and Iranian crude should be excluded from official global inventory counts, as floating storage surpassed one billion barrels. Ultimately, though, supply and demand still rule the market. Russia cannot fully rely on China as a buyer. There is also renewed discussion among the EU and G7 about potentially lifting the Russian crude price cap while aggressively targeting the shadow tanker fleet instead. Any easing of sanctions would unleash a large amount of discounted crude onto the market, though many traders believe this scenario is already reflected in prices.
The Federal Reserve cut interest rates as expected, sending equities and metals higher. Crude, however, sold off—an unusual reaction given the weaker dollar. The move reinforces just how heavy the supply outlook has become heading into 2026. Liquidity remains thin, speculative interest is low, and most market participants are firmly in wait-and-see mode.
Chicago spot prices continue to track crude lower. Diesel prices are near the lowest levels of the year, but winter blending is distorting retail pricing. The cost of #1 diesel used for cold-weather blending has surged, keeping pump prices flatter than expected. As a reminder, unusually cheap diesel at the pump may not be properly blended for extreme cold, especially sub-zero temperatures. Gasoline prices remain steady, and I expect retail gasoline to stay near the lows for the year.
Propane retail prices moved higher again this week due to allocation issues across the Midwest. There is no shortage of propane supply—this is strictly a logistics issue as product struggles to reach the right terminals. Prices are unlikely to ease until allocations improve and terminals can rebuild inventory. Warmer temperatures in the coming week’s forecast may help alleviate some of the pressure. With recent snowfall, please remember to keep driveways clear and maintain safe access to propane tanks to ensure efficient and safe deliveries.
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
Sources: Wall Street Journal, Bloomberg, and Reuters