Happy Friday!
Crude oil prices are on track to decline for a second straight week, holding below $60 per barrel. While prices briefly bounced on news of a U.S. blockade tied to Venezuelan oil, the move faded quickly. Venezuela represents roughly 1 percent of global oil supply, and the current oversupply is more than enough to absorb any disruptions. Chevron continues to be exempt from the Venezuelan blockade, running exports openly from Venezuelan ports. The market continues to make it clear that supply and demand fundamentals, not headlines, are driving prices. The U.S. imposed another round of sanctions on Iran’s shadow oil fleet, but traders remain skeptical that the measures will materially impact flows. Iran has repeatedly found ways around sanctions in the past, and the market is largely betting on the same outcome this time.
Saudi Arabia continues to increase exports while cutting official selling prices. That combination is reinforcing the oversupply narrative heading into 2026. While OPEC maintains that it wants to avoid a price war, Saudi actions suggest market share is becoming a priority. Middle Eastern crude prices have also softened into year-end as producers work to keep barrels moving in an increasingly crowded market. Western Africa continues to add barrels to an already oversupplied market, and traders are questioning where incremental demand will come from as most major buyers have supply locked up. Venezuelan crude floating storage has climbed above 20 million barrels, the highest level since 2022. These barrels serve as a buffer for China, but China’s weak economic growth limits urgency to take delivery. India increased Russian crude imports by 3.4 percent in November compared to October. While India continues to source oil from non-sanctioned producers when pricing makes sense, Russia remains part of the supply mix despite sanctions. China remains a major headwind for oil demand. Factory output growth slowed to a 15-month low, and retail sales posted their weakest performance since Covid. China has already filled much of its strategic reserves and is set to reduce fossil-fuel power generation for the first time in a decade. Without meaningful stimulus, weak Chinese demand will continue to pressure crude prices.
Geopolitical tensions remain elevated. European leaders committed $105 billion in additional funding to support Ukraine, both to limit Russia’s ability to expand westward and to maintain leverage in peace negotiations. Ukraine struck another Russian oil cargo ship this week, causing a fire and marking further escalation in attacks on Russian energy infrastructure. President Zelensky is scheduled to meet with a U.S. envoy in Berlin as talks continue around a potential framework for peace. The U.S. announced its largest-ever arms sale to Taiwan, an $11.1 billion package aimed at reinforcing U.S. support. The move adds tension with China at a time when both sides are still trying to manage trade relations. China, meanwhile, has voiced support for Venezuela against the U.S. oil blockade, further complicating trade negotiations. While the headlines initially pushed crude prices higher, the impact is limited.
On the US macro side, inflation rose less than expected, coming in at 2.7 percent. The softer print supports the idea that the Federal Reserve may slow the pace of rate cuts, keeping the dollar relatively strong. Even with the dollar sitting near two-month lows, crude prices continue to slide, underscoring how dominant the supply overhang has become. The U.S. jobs report showed payrolls increasing by 84,000 after a decline in October, but the unemployment rate rose to 4.6 percent. The data suggests the economy is cooling more than many expected. Tariff uncertainty heading into 2026 continues to weigh on business planning and capital spending. U.S. oil and gas companies are increasingly looking north to Canada’s Montney Basin for mergers and acquisitions. With low production costs and a large shale resource, U.S. producers see an opportunity to expand their footprint by acquiring companies already operating in the region.
The Chicago spot market remains very weak relative to NYMEX. Diesel differentials are extremely low, making spot purchases highly attractive. While limited production of #1 diesel has kept winter blending spreads elevated near $1 per gallon, #2 diesel prices are at the lowest levels seen in years and offer excellent value compared to NYMEX. Gasoline differentials are also very low, making both products strong buying opportunities heading into year-end. If you see unusually cheap diesel at retail pumps, be sure to ask whether the fuel is being blended with #1. In my view, additives alone are not sufficient protection during sudden cold snaps. I expect diesel prices to continue easing into next week, while gasoline prices should remain stable and attractive for the holiday travel season.
Propane prices moved higher again as logistics across Wisconsin remain challenging. There is no supply shortage, but moving product to the right terminals continues to be difficult and driving prices higher. We are hopeful the distribution network begins returning to normal by year-end and prices will retreat accordingly. I believe we are nearing the top of the current propane price move. As always, please make sure driveways are clear of snow and ice and that there is a safe, clear path to your tank to ensure safe and efficient deliveries.
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