Happy Friday!
Monday there was no market due to Labor Day, so everything took off on Tuesday. Over the holiday weekend, the US attacked three Iranian tankers, and Iran retaliated with attempted strikes on US warships. And in a surprise move, the Houthis attacked energy facilities and cities inside Saudi Arabia. The attack is a major escalation in the Gulf. Saudi Arabia said any ceasefire with Yemen is now on hold. Iran responded by announcing a new “exclusion zone” in the strait and warned that any attacks on Iran would be reciprocated with attacks on American assets. On the supply side, Nigeria announced it has reached 700,000 barrels a day of crude processing, with the majority going to diesel and jet fuel. The almost 1 million barrels a day was much-needed good news at a time of continued tight world supply of distillate. This week, all eyes were on monetary policy, with the ECB looking to raise rates and the Fed possibly not far behind.
On Wednesday, the US and Iran exchanged heavy fire. The US sank five Iranian oil tankers, and Iran struck 10 random ships in the strait while also firing at American bases in Jordan. The US announced that any further attacks from Iran would result in another Iranian tanker being sunk. The US is continuing its path of economic pressure to end the war. However, Iran keeps defying expectations. The escalation pushed WTI toward $100 a barrel, and gasoline and diesel prices climbed dramatically. At home, the US Treasury is trying to control the bond market sell-off, but the dollar didn’t gain any strength to help rein in oil prices. Adding to the pressure, Ukraine struck another oil refinery in Russia, further pressuring refined fuels in the world market. Diesel prices continue to sit at record highs and keep climbing. The only bearish news came from China, which said it expects oil demand in their country to fall 8% this year and keep declining into 2027. If the US slides toward recession and China keeps buying less oil, we could be looking at an oil shock collapse in 2027. By midweek the consensus was we’re stuck with current prices for longer.
On Thursday, the European Central Bank raised rates by a quarter point, putting more pressure on the Fed to possibly follow suit at its next meeting to tame inflation. Wholesale prices rose again in August as expected, but oil prices kept climbing anyway. The Houthis moved north along the Yemeni coast and now have the ability to control oil exports in the Red Sea coming from Saudi Arabia. The quick move believed to have been carried out with Iranian weapons and intelligence. This new threat to crude shipping routes is putting several countries in a tight spot that may require military action. OPEC cut its 2026 demand forecast for the fifth time, though it still sees some demand growth by year-end. In contrast the IEA, still believes overall demand will decline. The EIA report came out Thursday due to Monday’s holiday. Refiners continued running hot at almost 98% capacity, crude stockpiles slipped again, and gasoline and diesel stockpiles rose slightly. However, diesel inventories remain 13% below normal. That tightness isn’t helping the price situation. By the end of day Thursday, crude oil rose well over $100 a barrel, and diesel hit another record high.
Crude oil took a breather Friday but is still on pace for an 8% weekly gain. Diesel retail prices broke yet another record by week’s end, with the average retail price crossing $6 a gallon. Beyond the OPEC-IEA disagreement over whether demand will rise or fall at these prices, Saudi Arabia released an interesting statistic. Saudi Arabia has now cut oil production to its lowest level since the Gulf War in 1990. The economic data at home wasn’t great either. CPI rose 0.4% in August and is up 3.4% year-over-year, with core inflation also rising. That data was a big reason crude oil prices dipped Friday. And the data is giving more weight to the idea that the Fed might raise rates, which would strengthen the dollar and weaken crude prices. Time will tell as we approach the next Fed meeting.
The Chicago Spot Market continues to be balanced and well supplied heading into harvest, with differentials still running at a favorable deficit to NYMEX. That said, both gasoline and diesel costs moved higher this week. Gasoline went up just over 10 cents a gallon since Monday, and diesel on track to end the week over 35 cents a gallon higher. I expect gasoline and diesel prices to move higher at the pump. Hopefully, after today’s breather, we hold at these levels for a bit.
Propane prices, for the first time in months, followed crude oil higher. Although not by much, but enough to nudge retail prices up slightly. National inventories remain very healthy, and I don’t expect propane to blow out the way gasoline and diesel have. Especially since rail cars from Canada will start showing up for winter. I could see retail prices tick up a little more by the end of September before holding as winter economics fully set in. We’re still writing contracts for the upcoming winter, and you can still fill your tank at a lower price than contract.
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