Happy Friday!

Crude oil prices ripped higher on Thursday and Friday as unrest in Iran intensified, raising concerns that protests could eventually disrupt production. That said, the rally looks more geopolitical than fundamental. The sharp selloff below $55 per barrel earlier in the week triggered technical and headline-driven buying, but broader economic data continues to point toward demand weakness.

The biggest headline of the week was the capture of Maduro, which only pushed oil prices up about $1. Markets quickly recognized that oil flows are unlikely to be disrupted and could actually increase. Venezuela’s new president, Delcy Rodríguez, signaled a willingness to work with the U.S. to keep oil flowing. Venezuela has the capacity to produce up to 3 million barrels per day, up from roughly 1 million today, but reaching that level would take years and massive investment.   If Venezuelan crude starts flowing to the Gulf Coast, gasoline and diesel prices could fall. Gulf Coast refiners are well-equipped to process heavy Venezuelan crude, similar to how Midwest refiners handle Canadian heavy oil, often yielding higher gasoline and diesel output per barrel. Trump stated he wants to push oil prices down to $50 per barrel using Venezuelan crude. That would come at a cost to U.S. producers, particularly in Texas and North Dakota, where production and investment would likely fall. While lower global prices could reduce gasoline and diesel costs, any meaningful pullback in U.S. production or new OPEC+ cuts could quickly swing the market back the other way.

It’s also worth noting that fully ramping Venezuelan production could cost well over $100 billion in investment. Trump announced plans to seize 30–50 million barrels of Venezuelan crude and sell it on the open market. In reality, the impact is minimal. For example, the U.S. consumes roughly 20 million barrels per day, so the volumes involved are a drop in the bucket. Even though much of the crude was originally headed to China, China’s storage levels are already near capacity, limiting any real effect. Chevron, which remains exempt from sanctions, is already looking to ramp up exports as quickly as possible.  Talks between the U.S. and Venezuela are gaining traction, with discussions underway on how Venezuelan oil could be handled going forward. While some view this as bearish, traders remain skeptical that the U.S. can effectively manage or rapidly rebuild Venezuela’s oil infrastructure. Oil companies are already jockeying for access, though Chevron appears best positioned given its long-standing presence in the country.  The U.S. is even discussing subsidizing oil investments in Venezuela to speed up exports, using incentives to attract more international oil companies.

The war in Ukraine remains to affect Russian exports. Ukraine struck another Russian oil tanker, while Russia retaliated with a hypersonic missile strike—one of the few times this weapon has been used during the conflict. The missile is believed to be impossible to intercept and capable of carrying nuclear warheads, reiterating the escalation risk. At the same time, Ukraine’s continued targeting of Russian energy infrastructure is further straining exports.  The U.S. seized a possible Russian-flagged oil tanker in the North Atlantic between Iceland and the U.K., marking another escalation. Russian naval and submarine presence in the region adds another layer of risk. Oil prices also found some support as Congress moved closer to passing a new Russian sanctions bill aimed at countries purchasing Russian crude. However, countries like India are actively negotiating trade deals with the U.S., and easing some Russian sanctions could be part of those discussions.

At the same time, Pakistan and Saudi Arabia are close to a fighter-jet deal, which could strain relations between Saudi Arabia and India and add to regional instability.  Trump also threatened additional tariffs on India if it continues buying Russian crude. This time, India appears serious about compliance and is preparing audits of its refiners as it pursues a broader trade deal with the U.S.  India is also reopening trade channels with China, allowing Chinese firms to bid on government contracts for the first time in five years. While this could lower costs for India, it risks complicating relations with the U.S., particularly around data security and future trade negotiations.  China has imposed new export controls on Japan, raising tensions as Japan continues supporting Taiwan. For now, traders view the moves as posturing, with the risk of military conflict still low. That said, China was vocal in condemning recent U.S. actions, calling them a potential blueprint for future moves against Taiwan.

OPEC+ reported a drop in December production, driven by declines in Venezuela, Iran, and Russia. Sanctions, ship seizures, and Ukraine’s attacks on Russian oil assets were blamed as the main culprit. Even so, OPEC+ met after the capture of Maduro and chose to keep pumping at current levels, a decision that in my view continues to push the market toward oversupply in 2026.  Iraq announced that its government has taken control of the country’s largest oil field as sanctions continue to pressure output. Officials say they plan to work around sanctions and maintain production, but traders are concerned the intervention could lead to operational disruptions and eventually to possible tanker seizures.  Middle Eastern crude continues to trade at deep discounts, the weakest levels of the year, reinforcing expectations that supply will exceed demand in 2026.  Chevron is also emerging as the likely winner in the bidding for Lukoil’s (Russian’s major oil company and Russia is part of OPEC+) foreign assets. Combined with a potential expansion in Venezuela, this would move Chevron closer to being one of the largest oil producers globally.

Despite the recent rally, I believe the oil market is overbought in the short term. U.S. jobs data and other economic indicators continue to soften, and the latest EIA report showed major builds in gasoline and diesel inventories—clear signs that demand is struggling to keep up.

The Chicago spot market followed crude prices higher, with differentials ticking up modestly. Forward contracts are trading at a premium, signaling continued weakness and encouraging buyers to purchase spot barrels and store them. I would expect gasoline prices to maybe tick up slightly next week. Diesel prices are likely to remain relatively flat after falling sharply and rebounding just as quickly.

Propane prices eased modestly with warmer weather in the forecast. Rack prices came down slightly to start the week, and pipeline and rail logistics appear manageable for now. National inventories remain at high levels. A sudden cold snap could quickly stress logistics again.  But other than possible supply logistics, there is no clear predictor for major propane price spikes at this time.

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

Best regards,

Jon Crawford

Sources: Wall Street Journal, Bloomberg, and Reuters