Happy Friday!
Oil prices traded mostly flat to start Friday after leveling out much of this week’s volatility. Traders continue to watch developments around Iran closely, as talks are expected to focus on nuclear activity, missile programs, and Iran’s support of militant groups in the region. Any real progress—or breakdown—could quickly shift sentiment, but for now the market is waiting for clarity.
Earlier in the week, crude gave up a sharp 3% rally after Iran confirmed it would participate in negotiations with the U.S. The back-and-forth has been extreme. On Wednesday, prices jumped more than 3% after Iran initially said it would not negotiate, followed by reports of a drone incident involving a U.S. carrier and harassment of a U.S. vessel in the Strait of Hormuz. President Trump made it clear that failed negotiations could lead to strikes, raising fears of a short-term oil shock. While any disruption would likely be temporary, it would still be felt quickly by consumers.
OPEC+ met on February 1st and agreed to keep output unchanged, offering no guidance on future policy. The decision was widely expected and had little market impact. Still, maintaining current production levels continues to walk a fine line, as global supply growth is inching closer to surplus territory heading into 2026. Saudi Arabia cut its official selling prices alongside Russia, signaling a continued push to protect market share in Asia. Russia followed up by announcing additional price cuts to China, attempting to offset potential losses from India. After India’s recent trade deal with the U.S., Russia discounted Urals crude to roughly $10 below Brent, a level that remains very attractive for India’s oil companies. At the same time, Russian and Iranian black-market crude continues to build, forcing other producers to keep volumes moving through official channels. India truly remains the key swing factor. While Trump has publicly stated that India should cease buying Russian oil, India has remained mostly silent and appears likely to continue purchases. Russia still offers the fastest and cheapest supply to India. Meanwhile, the U.S. is considering selling Venezuelan crude directly to India as part of a broader effort to cut Russian cash flows tied to the war in Ukraine. That move, however, could divert barrels away from Gulf Coast refiners that were expecting increased Venezuelan supply.
In other geopolitical news, the nuclear arms treaty between the U.S. and Russia officially expired for the first time in over 30 years. Trump has expressed interest in renegotiating a deal that would include China, acknowledging how global power dynamics have shifted. While not an immediate driver of oil flows, the development adds to the broader geopolitical backdrop the market continues to digest. In the Middle East, Israel reopened the border between Egypt and Palestine, only to follow with renewed military strikes shortly after, shaking confidence in the durability of the truce. These developments remain secondary to oil supply economics for now but add to overall regional uncertainty.
The U.S. avoided a government shutdown late Tuesday, providing some relief to broader markets. Manufacturing data in the U.S. came in weaker than expected, with tariffs starting to weigh on activity. America and China appear to be slowly decoupling economically, though neither side wants to abandon trade talks. The uncertainty adds another layer of risk to demand forecasts. In Asia, factory activity expanded in January, offering a modest floor to oil prices, but continued supply growth still outweighs demand gains for now. Longer-term investment trends continue to point toward ample supply. Major oil companies are increasing investment in West Africa, hoping to unlock reserves similar to what was discovered offshore Brazil. Shell is also evaluating offshore investments in Venezuela, which would make it the first major producer after Chevron to move into the country. If approved, these projects would add more heavy sour crude to the global market, putting pressure on light sweet barrels from places like Saudi Arabia.
The Chicago spot market followed crude prices higher this week, with diesel remaining the most volatile product. Diesel prices swung sharply as cold weather and heavy precipitation in the Northeast continue to drive strong heating oil demand with tight supplies. While Midwest production is running well, significant volumes are being pulled east at premium prices, leaving little spare capacity elsewhere. Gasoline prices also moved higher but with much smaller swings. I expect diesel prices to remain elevated until Northeast weather moderates and logistics improve, while gasoline prices should stay relatively stable.
Propane prices continue to trade in a narrow range, but logistics remain a major challenge across states east of the Rockies. Pipeline allocations are still tight, and while warmer weather next week should relieve some pressure, there is a considerable backlog to work through. I expect shipping and logistical issues to persist through much of February. Avoiding a polar vortex in Wisconsin would go a long way toward preventing further stress on the system.
As always, if you have any questions, please feel free to give us a call. Have a great weekend!
Best regards,
Jon Crawford