Tariffs Came and Went
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
Anticipating Canadian Tariffs
Good morning,
Happy Friday! Crude oil prices are on track to close their second consecutive week with a loss. Inflation remains a concern in the U.S., prompting the Federal Reserve to maintain its pause on interest rate cuts. Surveys from major banks now indicate a 25% chance of a potential rate increase. This decision has kept the dollar firm, helping stabilize crude oil prices.
The continued price decline this week is largely driven by concerns over weakening demand in China and the impact of Trump’s proposed tariffs on the global economy. Additionally, Trump has reiterated his commitment to keeping crude oil prices low by any means necessary. However, crude oil prices leveled off toward the end of the week as bullish data entered the market. Kazakhstan announced that OPEC should remain united and resist engaging in a price war for market share. A price war could drive crude oil prices down significantly, creating a scenario where no country benefits. If energy companies start losing money on crude oil production, they may attempt to recover losses by increasing the price of gasoline and diesel. If these fuel prices rise globally, the risk of a recession increases, which could further reduce crude oil demand and force companies to raise finished product prices even higher. In short, a supply war for crude oil market share could create turmoil in the global economy.
In other news, Ukraine continues to target Russian refineries, raising concerns about potential export disruptions. Meanwhile, Trump is considering imposing tariffs on Canadian crude oil imports. If enacted, these tariffs could increase Midwest refining costs by 25%, likely leading to higher gasoline and diesel prices. Trump is also weighing the possibility of placing a 25% tariff on Mexican crude oil, revoking Chevron’s license to operate in Venezuela, and imposing sanctions on Venezuelan crude oil. These actions would have a significant impact on Gulf Coast refineries, which rely on imported heavy crude. The shale oil produced in the Permian Basin does not meet refining specifications for these facilities, just as Bakken crude oil is not compatible with Chicago-area refineries that serve the Midwest. If these tariffs and sanctions move forward, refiners east of the Rockies may struggle to secure the appropriate crude oil imports to maintain production levels. As a result, gasoline and diesel prices could rise. For now, the industry is in a holding pattern, awaiting Trump’s final decision expected tomorrow.
In local news, gasoline prices increased slightly as refiners prepare for potential tariffs during the upcoming peak demand season in spring and summer. However, I do not anticipate significant price fluctuations at the retail level, as margins have remained strong amid ongoing volatility and market uncertainty. Diesel inventories have declined, yet diesel prices have dropped over the past week due to tariff concerns. While tariffs could increase costs, many traders expect that higher prices will reduce demand. A slight decline in diesel retail prices is possible, but any movement is likely to be minimal.
Propane prices continue to trend lower as supply disruptions east of the Rockies improve. The extreme winter weather, which drove demand spikes as far south as New Orleans, had caused spot price basis to rise dramatically. However, with basis levels shrinking, I expect retail propane prices to decrease in the coming week. As always, please ensure your driveway is free of snow and ice and that there is a clear path to your propane tank. This will help our drivers make safe and efficient deliveries when you need a refill.
If you have any questions, comments, or concerns, please feel free to give us a call!
Best regards,
Jon Crawford