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