Monthly Archives: August 2026

Crack Spreads Breaking Your Wallet

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Happy Friday!

Oil is ending the week right around $87 a barrel, up for the third straight week.  And the reasons are pretty simple to understand.  The diplomatic situation with Iran continues to go nowhere. The interim ceasefire formally expired Monday. Iran declared a fully offensive military action is on the table.  Trump threatened to bomb Oman if they assist Iran controlling the Strait. Washington announced what it is calling an “economic D-Day” against Iran. And the cherry on top, Hormuz traffic stayed near zero. Here is what drove the market this week.

Monday opened with the clearest explanation yet for why peace talks keep failing.  The US intelligence is claiming that Iranian hardliners interpreted the entire diplomatic process of the most recent ceasefire was a delay tactic. Rather than engaging in diplomacy, they reportedly spent the past two months rebuilding missile infrastructure and mobilizing forces to widen the conflict. Iran is starting to release information saying they will inflict military conflict all over the Gulf to make sure that they are never attacked again. Their new militant position basically puts any imminent resolution on hold. On the physical side, Hormuz traffic collapsed over the weekend. Only five vessels crossed on Saturday, and not a single one on Sunday.  Trump told Americans to simply accept higher gasoline prices while the conflict continues. Middle Eastern producers are still finding ways to move some oil and that is helping keep a partial lid on prices. But the workarounds are not as efficient as crossing the Strait.

Tuesday pushed oil to a three-week high after Trump threatened to bomb Oman for its role communicating between Washington and Tehran.  The announcement was stunning considering that Oman has been a US security partner for decades and Oman has been trying to end the war. The Houthis launched missiles at Saudi vessels in the Red Sea. Another attack was reported in the Strait. The attacks made ships pause and only six ships crossed the Strait.

Wednesday saw WTI hit another high. Trump declared the US would subject Iran to an “economic D-Day.” The UAE suspended all financial and economic transactions with Iran. The ceasefire agreement was now fully expired, and Iran confirmed there is nothing to extend. Three China-linked supertankers turned around in the Strait. Hormuz traffic held at six vessels again for the day, falling between the ten day average.  The EIA weekly inventory report showed another major build in oil inventories. US crude stocks rose 4.4 million barrels to 428 million total.  The total crude inventories is now matching the five-year average for the first time in months. Refineries ran at 97.2% of capacity. At that rate there is no room for spare production.  The US refining market is maxes out.  Gasoline stocks rose slightly but remain 5% below normal. However, with higher gasoline prices and coming out of summer, the deficit is not going to be significant.  Distillate fell 1.5 million barrels and sits 13% below average. The diesel shortage is causing diesel price to rocket higher.  The US is entering into harvest season with low inventories and a major world appetite for diesel since the world inventory is short.  Therefore, the incentives for American refiners are much better to export diesel rather than selling at home.

On Thursday, US economic data was released that caused a bit of jitters in the markets. US government debt topped $40 trillion for the first time. The Treasury moved to increase buybacks of long-term bonds to try and calm markets, which sent 30-year yields sliding briefly.  But analysts warned the relief could be short-lived if oil prices and inflation continues. In addition, as the dollar loses value, higher crude oil prices will be supported.  In good news, Chinese refiners have been buying up Iraqi crude when available. China is refining for diesel at home.  This helps alleviate some of the pressure on world diesel supply.

Friday pushed oil toward $87 as Washington announced it would soon impose the toughest sanctions in Iran’s history.  The goal is to try and overthrow the Iranian leadership. The announcement added a second layer to the conflict instead of just focusing on reopening the Strait.  Iran responded by saying they would respond with devastating military attacks.  The amount of Iranian crude available to Chinese buyers is quickly running out.  Some are believing that this is a clear sign the naval blockade is working. At home, regular gasoline averaged $4.10 a gallon, up from $3.13 a year ago.  The continued economic struggles at home and the conflict in the Gulf are setting us up for higher prices for longer.

Chicago spot market followed crude oil prices higher.  Differentials have been healthy in comparison to NYMEX.  Therefore, there is more room for diesel and gasoline prices to run higher.  The mind-blowing crack spreads at $70/barrel are pushing diesel cost to record-setting highs in comparison to crude oil price.  For example, our current cost of diesel was last reported when crude oil was near $110-120/barrel. We are not even at $90/barrel!  Increasing prices of crack spreads mean that refiners are making more money per barrel of gasoline and diesel. Diesel prices have climbed over 75 cents from the lows in July.  And unfortunately, at this time, I don’t see any relief going into harvest.  The high cost of diesel for harvest will put further inflationary cost on food.  Gasoline prices continue their run at very high prices while the summer driving season winds down.  Although gasoline prices have not risen at the same rate as diesel, gasoline prices are high enough to start causing economic headwinds for consumers.  For now, the purchase strategy is to cost-average spot purchase.  The futures for diesel prices next year climbed almost 50 cents over the past three weeks!  Absolutely bananas!

Propane prices also followed crude oil prices higher this week.  In my opinion, propane has solidified a floor for spot pricing and future contracts as well.  Therefore, if possible, you should top off your tank before winter economics kick in.  On October first, winter index hits the market so there is a higher probability that propane spot prices will move higher in October, especially if crude oil prices remain high.

As always, if you have any questions please feel free to give us a call. Have a great weekend!

Best regards,
Jon Crawford

Sources: Bloomberg, Reuters, Wall Street Journal

Shaking Your Head: That’s All You Can Do

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Happy Friday!

Oil is ending the week around $82 a barrel, up sharply from last Friday’s close. The diplomatic announcements kept coming all week, but so did attacks. Both the US and Iran now openly claim they control the Strait of Hormuz. The shipping data says neither is telling the full truth. We continue as we have over the past months with “believe it when I see it” territory. Here is what drove the market this week.

Monday started with some optimism. Iran and Oman reported their talks on new shipping lanes through the Strait were progressing smoothly, with a route map already agreed and only technical details left to finalize. But Iran immediately attached a full list of conditions for anything broader regarding opening the strait.  The demands include US compensation for attacks on Iran, an end to military threats, removal of the naval blockade, lifted sanctions, and release of frozen assets. Trump’s response was a bit passive. He told reporters the US is only semi-negotiating on Hormuz and is willing to let economic pressure build rather than order fresh strikes. The logic: crude prices have come down considerably from the war’s peak, giving Washington some room to wait. But that breathing room may be shrinking faster than the administration thinks. The SPR is at its lowest level since the early 1980s. The squeeze is sharpest in diesel.  Diesel is trading above $160 a barrel in Europe and hit simultaneously by Russia’s ongoing conflict with Ukraine. Reports from a major crude shipper stated that 15 of its vessels have been attacked transiting Hormuz since the war began. Saudi Aramco pushed back the restart of its Jazan refinery to August 30 after Houthi forces struck it again over the past weekend.

Tuesday brought a 5% surge in oil prices after Trump responded to Iran’s conditions list with a demand of his own.  Trump is demanding that Iran pay compensation for people killed in wars, attacks, and protests. The demand makes reopening the Strait harder, not easier. Pakistan, which has been quietly mediating throughout this war, signaled the two sides were getting closer.  The news pushed oil prices down a bit. But attacks started up again.  Houthi forces attacked a cargo ship in the Bab el-Mandeb, reportedly killing three crew members. A Libya refinery was struck by drones for the third time since the weekend, with Libya’s state oil company warning it may halt operations entirely if attacks continue. Hormuz traffic stayed minimal.  Only six vessels transited Monday.  As a reminder, the prewar daily average was 130 to 140 ships.

Wednesday was the week’s most data-heavy day.  The EIA weekly inventory report showed US commercial crude stocks jumped 17.4 million barrels.  This was the largest single-week build since January 2023. Crude imports jumped sharply as refineries continued running at 96% of capacity. Gasoline stocks dropped and remain 6% below normal. Distillates barely moved but are still running about 12% below average. The IEA’s monthly report delivered an eyebrow-raising report.  They claim that global oil markets face a supply shortfall of 1.8 million barrels a day this quarter.  That number is more than double earlier projections.  The predictions are based on renewed hostilities and shipping disruptions that could derail the expected Middle East production recovery. For 2026 as a whole, the IEA projects the widest supply deficit in five years. There was some welcome inflation news. Consumer prices rose 3.4% in July.  CPI report was cooler than both June’s reading and expectations. The main driver for lower CPI was the drop in gasoline prices throughout July. On the diplomatic front, Trump claimed the US has total control over the Strait of Hormuz. Tehran responded with continued insistence that the waterway stays closed unless Washington meets its conditions.

Thursday brought a reversal. Oil fell roughly 2% as OPEC cut its 2026 demand growth forecast for the fourth straight month. The SPR fell below 300 million barrels for the first time in almost 35 years. That is the emergency reserve America built specifically for moments like we are in with the war in Iran, Ukraine, and world oil supply disruption. The fight over who controls Hormuz took a strange turn. Iran’s paramilitary chief declared the strait is under the management and control of the Islamic Republic.  This was one day after Trump said the US had total control. Both claims can’t be true. Two oil vessels were attacked while transiting Thursday, which the UAE government is calling an Iranian attack. Russia’s refining sector added another issue to its ongoing crisis.  Their Orsk refinery was hit by a Ukrainian drone strike earlier in the week, shutting it down completely with repairs possibly taking six months. Russia, one of the world’s biggest oil exporters, imported its first-ever cargo of Indian gasoline this month. The reports continue to emphasize just how badly Ukrainian drone attacks have disrupted Russian refining capacity.

Friday pushed oil higher again as the US announced it would soon implement unprecedented new economic measures against Iran and confirmed the naval blockade would continue indefinitely. Treasury Secretary Bessent described an economic isolation campaign coming that would go beyond existing sanctions. At least four Asian refiners bought US crude this week as Hormuz remains effectively closed. Before the war, Asia sourced more than half its crude from the Middle East. In July, the region imported a record over 2 million barrels a day from the US instead. Russia’s share of India’s oil imports hit a record 50% in July, up 62% from a year ago, as the Middle East supply crunch pushed Indian refiners back to Russian crude. The US Senate passed legislation imposing 100% tariffs on buyers of Russian oil, raising pressure on India purchasing such a high volume of Russian crude. Ukraine offered Russia a Black Sea truce covering civilian targets today, even as it resumed near-daily refinery attacks and struck Russia’s Baltic port overnight. The US sold $25 billion of 30-year bonds at 5.216%.  This is the highest rate in a quarter century.  The sale is a sign investors are demanding more to finance the growing federal deficit. The bond sale is not directly about oil, but puts eyes on watching how the US dollar trades.

The Chicago spot market followed futures higher all week. Diesel jumped over 30 cents a gallon and gasoline rose over 20 cents. To put this in some context, diesel prices have now risen over 85 cents in just the past four weeks. At the current ratio of diesel to crude oil prices, we are hitting diesel cost levels that used to correspond to crude at over $100 a barrel, if not well over $110/barrel. If global diesel supply stays this tight with no major demand drop, retail diesel prices could push past $6 a gallon. I do expect to see both gasoline and diesel retail prices continue to rise at the pump heading into next week.

Propane again is playing the same song. Inventories are robust, price movements remain narrow, and the supply picture heading into fall looks healthy. That said, like a broken record, shipping logistics will cause a price spike at some point during winter.  They always do. It is exactly why we recommend topping off your tank at summer rates now and booking some heating gallons for the upcoming season.

As always, if you have any questions please feel free to give us a call. Have a great weekend!

Best regards,

Jon Crawford

Sources: Bloomberg, Reuters, Wall Street Journal

Tolling Deal In The Strait Lowers Oil Prices?

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Happy Friday!

Oil is ending the week right around $82 a barrel.  This is down from where it started Monday. Every day brought new diplomatic signals and fresh attacks, often within hours of each other. The Iran-Oman talks over Hormuz progressed enough to move markets. So did the Houthi missile strike on a Saudi tanker near Yanbu. We are definitely still in “believe it when I see it” territory. Here is what drove the market this week.

Monday started with oil down sharply on hopes that diplomacy might actually be gaining traction. Trump said over the weekend that Iran and other Gulf states had asked for more time to finish a deal, and that talks would begin Monday. Iran’s foreign ministry said the opposite.  He said no talks were underway, no meetings were on the calendar. It is the same claim-and-deny pattern we have seen repeated for weeks. Here is what is real. OPEC+ approved a modest production increase of about 188,000 barrels a day starting in September, completing the unwind of production cuts first agreed back in 2023. On paper, that is more supply. In practice, the disruptions from this war have made most OPEC quota moves irrelevant. But when the strait eventually reopens and Gulf producers start pumping full speed, those barrels will matter. Hormuz traffic stayed thin over the weekend. The Bab el-Mandeb saw declining traffic too, down to just 18 vessels on Sunday from 28 on Friday. The world’s crude spare capacity has been draining for more than five months now, and it is noticeably thinner than it was in February.

Tuesday brought the week’s most whipsaw session. Prices rose early after fresh incidents in the Strait, then reversed hard and fell about 4% as Treasury Secretary Bessent said a deal to reopen Hormuz could come as soon as Tuesday or Wednesday.  Qatar confirmed draft language on a broader US-Iran agreement was already circulating. Qatar was careful to note that no direct talks between Washington and Tehran are actually happening yet. That combination was enough to erase the morning’s gains and more. On the supply side, US crude exports dropped to their lowest level in eight months in July, as the brief June peace deal temporarily flooded the market with Middle Eastern oil and cut demand for American barrels. One sobering detail buried in Tuesday’s news was that the US Army has possibly burned through virtually all of its long-range missile stockpiles during this war. That is not a small thing for any future escalations.

Wednesday pushed WTI higher after the Houthis struck a Saudi oil tanker near Yanbu.  Remember, the Red Sea port has been Saudi Arabia’s main export workaround since Hormuz closed. That attack landed the day after Qatar said mediators were making real progress. The optimism diminished quickly. Iran again denied any peace talks are underway, directly contradicting Trump’s statements. The core sticking point remains unchanged.  Iran wants control over ships entering the Strait of Hormuz. That is no longer a negotiating position for Tehran. It is a red line. The EIA inventory report gave the market a slight surprise. Crude stocks actually built by 2.5 million barrels to 407 million barrels, about 6% below the five-year average. Gasoline fell 1.6 million barrels and distillate dropped 3.5 million barrels, running roughly 12% below normal for this time of year. Refineries eased slightly to 96.5% capacity.

Thursday brought meaningful news on the development of controlling the Strait of Hormuz. Iran and Oman reached an understanding on a path for new shipping routes through the Strait.  The proposed arrangement would give Tehran control over ships entering the Gulf, with both inbound and outbound passing through Iranian waters.  There is a catch though.  US officials have repeatedly insisted they would never accept Iran controlling access to the strait.  So a potential military response from the US is back on the table if Oman and Iran agree to a deal.  Prices came back to roughly where they traded before the June ceasefire, but the underlying situation is more fragile now than it was in June. Iran’s negotiating position has strengthened, inventories are lower, and there are more shipping routes being disrupted. The Houthis struck two more Saudi tankers on Thursday, and Iran warned Gulf states that any new US attack on Iran would trigger retaliation against energy infrastructure across the region.

Friday looks to close the week slightly higher as investors weighed the Iran-Oman deal. Iran is seeking fees of 5-7% of cargo value from ships using Hormuz. Oman is pushing for around 3%. Washington wants no fees at all. There are still a lot of details to iron out going into the weekend.  Hormuz traffic fell to just 33 vessels for the full week Monday through Thursday, down from 50 the prior week. Only four vessels crossed on Thursday.  Saudi Arabia expects continued attacks from Iraqi militias operating under Iran’s Revolutionary Guard. In response, Saudi Arabia, Pakistan, and Turkey signed a joint defense agreement. One very interesting supply data point stands out from Friday’s data.  US imports of Saudi Arabian oil dropped to zero in July, yes, zero.  That is the first time that has happened since 1985. July’s jobs report came in far weaker than expected. Payrolls fell by 23,000, versus expectations of an 80,000 gain. The weak jobs data eases pressure on the Fed to raise rates next month.  However, a weaker dollar puts upward pressure on the price of crude.  Although the jobs report was weak, the economy itself grew at its fastest pace in three years last quarter further supporting crude oil prices on the demand front.

The Chicago spot market continues to run at full capacity. Prices for gasoline and diesel ended up lower for the week despite a large recovery in prices on Thursday. I still expect to see retail prices move lower heading into next week. Crack spreads continue to run hot with crude oil price in steep backwardation. Chicago differentials remain stable, but with refiners needing to sell every barrel they produce, the chances of a refinery running into an issue remain high. Hopefully we get through the rest of the summer without any major disruptions.

Propane prices again are boring and quiet.  Nothing much new to report. There was a small price dip mid-week that fully recovered the next day. Inventories remain healthy and well above the five-year average, so no red flags heading into fall. If you are able, I still recommend topping off your tank and contracting some gallons for next heating season.

As always, if you have any questions please feel free to give us a call. Have a great weekend!

Best regards,

Jon Crawford

Sources: Bloomberg, Reuters, Wall Street Journal