Good afternoon!
After an absolutely chaotic and tense week in the markets, crude oil prices are on track to close lower for the third consecutive week. Monday was particularly volatile, with Canada and Mexico announcing retaliatory tariffs on the United States after Trump imposed a 25% tariff on Canadian and Mexican goods, along with a 10% tariff on crude oil imports. Additionally, Trump proposed levies on American companies purchasing crude oil from Canada. The crude oil market surged in response, triggering widespread panic. The Dow and S&P tumbled, Bitcoin collapsed, agricultural commodities declined, and crude oil prices soared. By 3 p.m. Monday, both Mexico and Canada agreed to pause their tariff plans, and the United States followed suit. As part of the negotiations, Canada committed to deploying 1,000 troops to its northern border to assist with security, while Mexico agreed to send 10,000 troops to aid in southern border protection. At one point, crude oil prices nearly turned negative due to the sudden market shift.
On Tuesday, it became evident that tariffs are going to be a key negotiation tool and that patience is essential during these discussions. Trump also urged American companies and Saudi Arabia to increase oil production in response to newly announced sanctions on Iran. He directed the State Department to reduce Iranian crude exports to zero. While this initially caused a spike in crude oil prices, the reaction was tempered when it became clear that the sanctions were being implemented gradually, leaving room for negotiation. Saudi Arabia has expressed a willingness to support the effort to squeeze Iran’s exports but is seeking concessions from the United States in return, including further civilian nuclear development and commitments for U.S. defense sales and protection. Meanwhile, China reported more disappointing economic data, further pressuring crude oil prices. Economists do not anticipate China emerging from recession until at least the end of this year, with most predicting a recovery may not occur until 2026. A critical factor to watch is how pressure on Iran and Russia affects OPEC+ production. If Saudi Arabia increases output more than expected, the UAE and Iraq may break quota agreements, potentially triggering a significant market shift. Despite sanctions and tariffs, crude oil fundamentals remain bearish. In the U.S., the Energy Information Administration (EIA) continues to report strong crude oil and refined product inventories. At this point, the best approach is to take a step back, remain patient, and see how developments unfold in the coming months.
In local news, Chicago spot prices largely mirrored crude oil movements. Diesel prices surged on Monday but have since stabilized to the downside. I do not anticipate a significant increase in retail prices at the pump. Gasoline prices also retraced their earlier gains, so I expect retail pump prices on gasoline to remain steady in the coming week. Not much change to the pocket book at the pump which is nice!
Propane prices have somewhat decoupled from crude oil trends. Even as crude oil prices declined, propane prices remained elevated throughout the week. The EIA reported another substantial drawdown in national propane inventories. While supplies remain in good shape, forecasts for colder-than-normal temperatures through the rest of February and possibly into March are contributing to volatility. I expect propane prices to hold steady this month and potentially decline in March. However, if the anticipated cold snap does not materialize, we may see propane prices start to soften by the end of February. With a possible major snowstorm predicted for this weekend in Wisconsin, I would like to offer a quick reminder to ensure driveways are clear of snow and ice and that there is an accessible path to your propane tank. We want to make sure deliveries can be made safely and efficiently. We appreciate your cooperation in advance!
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