Happy Friday! The biggest news of the week is that the BREWERS ARE WORLD SERIES CHAMPIONS!!!! What a season and October run! Now we can finally get some sleep!
WTI crude is on pace for its sixth straight week of gains, closing firmly above $100 a barrel after a week that moved between diplomacy and military escalation. Here is what drove the market this week.
Monday, oil dropped heavily to start the week but recovered by noon. Crack spreads took a decent hike, keeping some pressure on refined products. The building tension between the US and Iran, along with the Saudi-Houthi fighting, carried over from last week into Monday. Qatari mediators traveled to Tehran to meet with top security officials from Saudi Arabia, Turkey, and Pakistan, hoping to cool things down in the region, though the fighting continued right through the talks. The Houthis attacked Saudi oil pumping stations and another airport, and attacks on ships in Hormuz officially hit their highest level since the conflict with Iran began. On the technical side, crude futures were flagged as a bit overbought, helping put a ceiling on the recent price run. However, the IEA countered the futures sentiment calling for high oil prices to persist through all of 2027.
Tuesday, WTI fell back through $100 as peace talks took the spotlight over continued attacks in the region. Diplomacy between Saudi Arabia and Iran had begun, but the Houthis kept attacking Saudi Arabia. The Houthis bombed the country’s largest refinery as well as its largest export terminal. Oil flow out of the Gulf remains below normal. In addition OPEC meets this weekend and is expected to hold quotas steady. The US also chose not to pressure India over its Russian oil purchases, an attempt to help cap high world oil prices. Russia and Ukraine agreed to a humanitarian ceasefire in one region while continuing to exchange fire elsewhere. Therefore that diplomacy doesn’t look likely to spread beyond that one small section.
Wednesday, oil traded higher after Trump reiterated to Gulf countries that small, precision strikes on Iran will begin after the election. Netanyahu’s reelection in Israel added more bullish sentiment, since it raises the odds that Israel will bomb Iran if needed. The EIA reported another crude inventory draw. We will be watching whether that trend reverses once harvest wraps up. Diesel stocks dropped again, adding pressure to the spot market during peak harvest demand. Gasoline stocks fell as summer demand keeps fading. World crude demand is just starting to show early signs of slowing, though not enough yet to move the needle. China is adding more fuel back to the market, but they’re paying a premium for the crude oil stock, so it shouldn’t be enough to move prices much.
Thursday, oil prices fell after JD Vance announced he’d sent a letter to a top Iranian official offering to open negotiations. Qatari mediators presented Iran with a new offer, and Iran seemed uninterested. Although as usual Iran said it would prefer diplomacy. Saudi Arabia will keep discounting its’ crude to keep volume flowing at full speed even as shipping costs continue to skyrocket. Oil companies reported earnings this week, and refiners so far have posted margins more than triple last year’s, cashing in on high crude prices and wide crack spreads tied to the wars in Iran and Ukraine. US third-quarter GDP growth came in a bit stronger than expected, showing the economy is still holding up under these high energy prices. The real test will be the holiday season. The Fed held rates steady at Wednesday’s meeting but hinted at one more hike in December heading into 2027. Unless crude falls hard before year-end, I think a December hike is close to a sure thing.
Friday, oil traded higher and looks to close out the week higher as well, now firmly above $100 a barrel. After Ukraine quietly paused its attacks on Russian refineries, Russia responded by striking Ukrainian infrastructure. In response, within 24 hours Ukraine abandoned the pause and hit two Russian refineries. A major oil tanker was struck in Hormuz, as Iran and the US edge toward a potential showdown next week after the election. Trump denied any peace talks were underway last night, even as Iran posted on X that negotiations were still ongoing. The US has continued helping ships through Hormuz, but any strikes on Iran would put American assets at risk and likely close the Strait entirely. The reality of the Venezuela deal also came into focus this week. As I’ve been writing, Venezuela’s ability to actually deliver on Trump’s deal is slim. Most production experts believe only about 10 billion of the agreed 64 billion barrels can realistically be developed given the country’s legal and infrastructure constraints.
Chicago basis went on another wild ride this week. Word came out that the Mobil Joliet refinery had reopened, and prices dropped on the news. But the report turned out to be inaccurate, and basis shot right back up. Diesel looks to close about 20 cents below the peak hit during the refinery outage. With every open barrel in the market getting bought up at steep premiums and harvest running at full speed, I don’t expect Chicago basis to come down until Mobil is fully back producing diesel. We’re currently at about 50% harvest completion in our region, so demand isn’t letting up locally. Gasoline price did collapse and is holding at lower levels as demand keeps falling. So I expect gasoline prices at the pump to move lower. Diesel will probably hold where it’s at, if not climb even higher.
Propane prices keep moving higher even though the fundamentals remain bearish in my opinion. Propane price continues to track crude oil price right now rather than its own physical fundamentals. I’m not sure whether propane price decouples from crude again after harvest the way it did most of the year before September. For now, I do expect higher retail propane prices next week.
As always, if you have any questions please feel free to give us a call. Have a great weekend!
Best regards,
Jon Crawford