Happy Friday and 4th of July weekend!
Oil finished the week around $69 a barrel and this was a week where the price kept drifting lower even as the news got more complicated. The Strait is still open and tankers are still moving, but the talks between the US and Iran are going nowhere fast, and both sides are starting to look pretty far apart on the most important questions. Here is what drove the market this week.
Monday started with oil bouncing back to about $70 a barrel after a rough weekend. Over the prior few days, Iran struck an oil tanker inside the Strait, the US fired back with fresh airstrikes, and several big ships that were planning to cross turned around and went home. But Monday brought an agreement from both sides to stop the reciprocal strikes and get back to the table. And that was enough to push prices back up about 1%. The ceasefire is still fragile, but it held. Saudi Aramco kept loading oil after the strikes, so some optimism remained in the market. A fourth supertanker was spotted loading there on Monday, adding to the three that moved the week before. Venezuela had a rough weekend too. A power outage from the earthquakes knocked out its biggest refinery. The good news is it came back online, and the country confirmed its oil production and exports were not affected.
Tuesday brought a diplomatic disappointment. US envoys flew to Qatar to restart talks with Iran. Iran didn’t show up. A Qatari official confirmed no high-level meeting happened, and mediators were basically just trying to keep things from getting worse. This matters because the 60-day window for turning the signed agreement into a permanent deal is ticking. Oil barely moved on Tuesday, holding near $71, which tells you the market had largely expected this. The bigger picture on Tuesday was that banks were cutting their oil price outlooks for the rest of the year for the first time since the war started. Gulf oil is coming back to market faster than the peace negotiations are moving forward, and analysts now expect there to be more oil than the world needs next year. Iraq started offering massive discounts to any buyer willing to send a tanker through the Strait. When a country is pretty much selling oil at cost, that tells you the supply picture has shifted from a few months ago.
Wednesday was quiet on the diplomatic front but busy on the data side. The government’s weekly oil report showed US crude stocks fell another 3.8 million barrels, leaving inventories about 7% below where they normally are this time of year. Gasoline also dropped 2.3 million barrels and is 7% below seasonal average. On the flip side, diesel stocks rose 2.5 million barrels, which continues to be a surprise. Refineries were running at 96.6% of capacity which is essentially full speed. There was an interesting data point discussed in the report. Americans are actually using less gasoline and diesel than they did a year ago. High prices from this spring left seem to have finally hit pocket books and people are cutting back. US crude oil production hit a record high in April of almost 14 million barrels a day. The extra supply is going to add to the global surplus that analysts are worried about in 2027. Russia’s fuel problems got even worse on Wednesday. Russia is now buying gasoline from India by ship. Ukraine has shut down so many Russian refineries with drone strikes that Russia is no longer able to produce enough finished product to meet the country’s demand.
On Thursday, oil prices fell again, dropping close to 2%, as the US-Iran talks in Doha wrapped up with what the US called “positive progress” but news outlets in Doha countered with publishing no actual breakthroughs. The 60-day clock keeps running with no deal on the horizon. Iran has somewhere between 58-68 million barrels sitting on tankers with no clear buyers. More than 90% of those ships show no destination. Iran has until mid-August under the US sanctions waiver to find buyers for that oil. Ukraine struck another Russian oil refinery Thursday adding to the continued growing list of Russian refineries driven offline.
Chicago spot prices did not move that much this week, and the market moved pretty much in line with crude oil. Diesel made some big up-and-down swings during the week but ended up right about where it started. Gasoline was flat all week. I expect to see prices at the pump stay about the same heading through the holiday weekend.
The big news on propane is that prices dropped heading into July. Demand has been weak, production has been strong, and even though exports are running at record levels, inventories remain at high levels. Combined with lower crude prices, propane prices moved down to its lowest price of the year. This is the best time we have seen all summer to fill your tank. I still strongly recommend topping off now and locking in some gallons for next heating season while prices are this low.
As always, if you have any questions please feel free to give us a call. Have a great weekend and Happy Fourth of July!
Best regards,
Jon Crawford
Sources: Bloomberg, Reuters, Wall Street Journal