Greetings!
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Happy Friday!
Crude oil markets ended the week in a position that may come as a surprise to those who have been watching the steady rally since the war began. Oil prices rose on Friday but are on track to end flat for the first time since the U.S.-Israeli war on Iran started. The reason came as President Trump extended his pause on strikes against Iran’s energy plants, giving markets a brief window of hope that a deal might take shape. Even so, crude prices remain well above normal levels. WTI hovered between $95-100/barrel, and the overall supply picture has not gotten much better. The International Energy Agency has described the current crisis as potentially worse than the two 1970s oil shocks combined, with roughly 11 million barrels per day pulled from the global market.
The back-and-forth around Iran diplomacy moved quickly this week, though the situation remains far from clear. On Tuesday, Iran’s military flatly rejected President Trump’s claims that the two sides were in talks, putting out a statement that all shipping to and from ports of U.S. and Israeli allies remains banned through the Strait of Hormuz. The Islamic Revolutionary Guard Corps left no room for doubt, and the statement pushed crude prices higher as traders adjusted their expectations for a quick end to the conflict. By midweek, though, the tone started to shift. A 15-point U.S. ceasefire proposal, passed to Tehran through Pakistan, came to light. Iran said it was reviewing the plan, though an Iranian official called it one-sided and unfair. Trump said talks were going very well, though go-betweens and reporters questioned whether real negotiations were actually happening. Trump has not said who he is supposedly talking to on the Iranian side, where many top officials have been killed during the war.
On Thursday, Trump announced a new extension of his deadline for Iran to reopen the Strait of Hormuz or face the destruction of its energy plants, pushing the date to April 7. He said the pause was in response to an Iranian request, though Tehran gave no public sign of having made one. The move brought oil prices down briefly, but the market remains doubtful that a deal is close. Behind the scenes, go-betweens from Turkey, Egypt, and Pakistan are pushing for a face-to-face meeting between U.S. and Iranian officials, and Iran’s outspoken Parliament speaker, Mohammad-Bagher Ghalibaf, has come up as a possible contact point for Washington. Meanwhile, the fighting continued to pick up in the region. Israel announced it killed the commander of Iran’s Revolutionary Guard navy, the person reportedly responsible for mining and blocking the Strait of Hormuz. The Pentagon is also looking at sending up to 10,000 additional ground troops to the Middle East. The Strait of Hormuz remains closed for all practical purposes. A report this week said that roughly a dozen Iranian naval mines are now sitting in the waterway, making any reopening effort even harder. Several U.S. allies continue to turn down Trump’s request for military help to clear the strait. France said it held talks with around 35 countries about a possible mission to reopen the waterway, but only after the war ends. The UAE, which has taken more Iranian attacks than any other country in the region including Israel, is working with Bahrain on a U.N. Security Council resolution to give a future naval force the green light, though Russia and China could block the effort. The message from the rest of the world is clear: no one wants to send ships into the Strait while bombs are still falling.
On the supply side, some countries are starting to find workarounds while others are stockpiling. India announced it has locked in crude oil supplies for the next 60 days, boosting purchases from the Western hemisphere and taking advantage of a temporary U.S. waiver to ramp up Russian crude imports. As the world’s third-largest oil buyer, India had been getting over 40 percent of its oil from the Middle East before the war. Its ability to fill that gap, at least for now, is helping keep global markets from getting even tighter. But a worrying pattern is showing up across Asia and beyond. China, South Korea, and Thailand are limiting some fuel exports. Russia and China have stopped overseas sales of certain fertilizers. Philippine Airlines warned of jet fuel rationing in the region. The urge to hold onto supply is understandable, but countries hoarding fuel and fertilizer risk creating the very shortages they are trying to avoid. Cutting off fertilizer shipments is especially dangerous because higher input costs go straight into food prices, just as food inflation had started to cool after years of shocks.
U.S. economic data this week took a back seat to the war, but the EIA reported that refinery activity rose by 1.5 percentage points and crude oil inventories rose by 6.9M barrels. The numbers suggest domestic refining is picking up, though higher crude costs will keep pushing gasoline and diesel prices up at the pump. Even as the US continues to try and export as much oil as possible, demand is possibly starting to flatline in the US and in other countries. The U.S. dollar, meanwhile, is on pace for its biggest monthly gain since July. A strong dollar has helped limit bigger crude oil price spikes but also adds to inflation pressure around the world by making oil and food more expensive for foreign buyers.
Looking ahead, the April 7 deadline is the next big moment to watch. Either Iran makes real moves toward reopening the Strait, or the U.S. follows through on its threat to hit energy infrastructure. I expect crude prices to stay elevated and very volatile to every headline until there is a real path to reopening shipping through the Strait of Hormuz. Even in the best-case ceasefire scenario, the world oil market would not turn around immediately. The work of clearing mines, restarting production, and moving the backlog of ships means it would take a long time for supply to get back to normal.
The Chicago spot market moved to the May prompt contract without much change in differentials. With the Chicago spot market running at an incredible discount to the NYMEX, wholesalers were worried about a potential rise in differentials when the April contract expired. Prices for gasoline have swung back and forth with 10-50 cent per gallon moves. The frequency and wide range of price moves made retail pricing very difficult to manage. The overall trend has been down a bit, but I don’t expect to see retail prices fall too much at the pump. The price changes are just too volatile to manage.
Propane prices have started to move a bit higher along with crude oil prices. I do not expect to see a price change at retail in the coming week or two. However, propane prices will be moving to summer contract trading in April. National inventories are keeping larger price moves higher in check. National propane inventories are up 60% over last year and the 5-year average. And the Midwest is sitting on an incredible high level of inventory. As of right now, the Midwest inventory of propane is 60% higher than last year and 40% higher than the 5-year average. I expect propane prices to trade in a narrow range coming out of winter unless crude oil prices surge to $125/barrel and beyond.
As always, if you have any questions please feel free to give us a call. Have a great weekend!
Best regards,
Jon Crawford
Sources: Bloomberg, Reuters, Wall Street Journal
Happy Thursday!
I am writing my weekly update one day early as I will be out of town tomorrow. Considering the current volatility of the crude oil markets at the moment, by end of day tomorrow, the following update could already be out of date! I hope everyone has a great rest of their week!
Energy markets continued their dramatic run this week as the war in Iran escalated in new and significant directions, with oil infrastructure now emerging as a primary target on all sides of the conflict. Crude oil is set to close the week back in the upper $90s, with WTI holding near $100 per barrel — a level that will keep gasoline and diesel prices elevated in the marketplace for quite some time. The most significant development this week was a dramatic shift in the nature of the conflict itself. Rather than focusing exclusively on military and shipping targets, both sides are now actively striking energy infrastructure. Israel took out refining capacity inside Iran early in the week, which triggered an Iranian response that struck Qatar’s LNG production facility on Thursday, knocking out 17 percent of capacity for at least five years. The loss is staggering. Qatar is the world’s largest LNG supplier, and Europe and Asia rely heavily on that supply with little room to absorb a disruption of this magnitude. The attack marks a dangerous new chapter in the war, with many analysts now speculating that energy infrastructure will become the primary battlefield moving forward.
Iran escalated further by launching missiles at the capital of Saudi Arabia and striking a Saudi refinery, ratcheting up pressure on the Kingdom to keep production running at maximum capacity. A simultaneous attack on a Kuwait refinery failed to inflict damage, but the message was clear — no regional energy infrastructure is off limits. Iran also resumed bombing the UAE, targeting the Fujairah port, which forced the suspension of all operations at the Shah gas field again. The escalation raises serious concerns that the Strait of Hormuz will remain closed longer than most had anticipated. Over the past weekend, Iran also attacked Dubai’s international airport with a drone strike, one of the busiest airports in the world and the main travel artery connecting the West to the Gulf. Many believe Iran will continue targeting Dubai as a symbolic pressure point.
On the military front, Israel’s Defense Minister claimed this week that Israel killed Iran’s security chief and the head of the Basij militia. On Wednesday, Israel also took out Iran’s Intelligence Minister, and Israel started striking Iranian energy infrastructure, hitting oil and gas plants that supply Iran domestically and export to Turkey. Iran responded by attacking Tel Aviv with cluster bombs, causing widespread damage across portions of the city. Israel has signaled it intends to continue pounding Iran with airstrikes for at least another three weeks, believing significant ballistic missile stockpiles, nuclear facilities, and internal security infrastructure remain intact. Meanwhile, the Ayatollah has ruled out any ceasefire proposals and is reportedly threatening citizens with death if they attempt to coordinate an uprising against his leadership.
On the diplomatic front, Trump is reaching out to China to help negotiate a plan to reopen the Strait, though China has condemned the strikes on Iran and remains well stocked on crude, making meaningful cooperation unlikely. Trump is also scheduled to meet with Xi Jinping for an economic summit, but has now postponed the summit by at least three weeks while he focuses on reopening the Straight. Although China is well stocked with crude oil and can weather the supply disruption for quite sometime, China is the number one purchaser of Iranian crude and will eventually need the Straight to reopen. Some are starting to believe Trump is using the postponement as leverage to force China’s hand in helping to reopen the Straight. Trump additionally threatened to take out Iranian oil infrastructure on Kharg Island, the largest oil exporting terminal in Iran if Iran continues to attack its neighbors, and demanded other countries send ships to the Gulf to force the Strait open. The U.S. is also considering deploying ground troops to Kharg Island, though the move carries significant risk and no one knows whether Iran would strike its own territory to target American soldiers.
Despite the ongoing conflict, some supply relief is slowly emerging. Saudi Arabia restarted its largest refinery this week after a drone strike took it offline on March 2nd, restoring 550,000 barrels per day of capacity. Iraq also resumed pipeline exports to Turkey, adding 250,000 barrels per day, though that remains a small fraction of the roughly 3 million barrels per day Iraq had previously cut. Saudi Arabia continues to ramp up shipments through its Red Sea export terminal at Yanbu, which can move up to 7 million barrels per day via pipeline, with 5 million available for export and 2 million feeding domestic refineries. Seventy tankers are expected to load this month with another forty on the way, the majority heading to Asia with China taking approximately 2.2 million barrels of the 5 million exported. The UAE also successfully restored operations at its main oil loading terminal over the past weekend, recovering roughly 1 million barrels per day, or about 1 percent of global supply. A Pakistani tanker successfully transited the Strait this week, expanding the short list of countries that have managed to pass through since the closure began. However, overall shipping activity remains extremely limited. Fuel oil, often overlooked in normal market conditions, is quietly becoming a concern as inventories begin to deplete globally. Fuel oil powers the maritime shipping industry, and as the Strait closure drags on, tightening fuel oil supply could send shipping costs even higher, creating a compounding effect on the cost of crude, gasoline, and diesel.
On the policy side, Trump issued a 60-day waiver on the Jones Act, allowing energy companies to move products more efficiently between U.S. ports without the restriction of requiring U.S.-flagged and U.S.-manufactured vessels. The waiver has been used before in times of crisis and should help ease domestic distribution. The administration is also considering waiving summer RVP requirements for gasoline production in an effort to reduce prices at the pump, though the impact would be minimal relative to the scale of the current disruption.
The IEA confirmed this week that its historic 400-million-barrel reserve release — the largest in history — will begin toward the end of March. However, the announcement is already priced into the market, and any hiccups in distribution could send crude prices shooting well past $100 per barrel quickly. Russia sent a tanker of crude oil to Cuba this week, testing the Trump administration, which has stated no oil is to enter the country. With Russian oil sanctions temporarily lifted, how the U.S. chooses to respond will be worth watching closely. The EIA reported another large build in crude oil inventories this week, which kept some lid on prices. However, the government has warned that if the conflict extends well into June, U.S. crude inventories could move into deficit after spending much of last year above the ten-year average. The Federal Reserve held rates steady this week, citing rising inflation driven by higher oil prices and an increase in wholesale goods prices in February. A stronger dollar is also helping keep WTI somewhat in check, as crude is traded in U.S. dollars.
Diesel remains the most acute problem in the domestic market. Heavier crude oils, which are required to produce diesel, come primarily from outside the United States, and the global bid for those barrels is fierce right now. Venezuelan crude is helping at the margin, but the competition for limited heavy crude supply is driving up refining costs and pushing diesel prices higher. The national average for diesel topped $5 per gallon for only the second time in history this week. Gulf crude also became the most expensive oil in the world for the first time ever, a remarkable milestone that underscores how dramatically this conflict has reshaped global energy pricing.
The Chicago spot market experienced violent swings this week, with moves exceeding 40 cents in both directions. The most important detail to watch right now is the massive differential spread between Chicago spot prices and the NYMEX. Diesel is currently trading at roughly a 70-cent discount to the NYMEX contract in the Chicago market. When the prompt month contract expires and April demand picks up locally, there is a real possibility that Chicago diesel prices rocket higher to close that gap. Gasoline is trading at a discounted differential to the NYMEX, though softer April demand could keep a lid on any breakout to the upside. Both gasoline and diesel prices at the pump should continue moving higher in the near term.
Propane markets remain quiet as winter demand fades. The EIA reported a build in propane inventories this week, putting modest downward pressure on prices, and trading ranges have been very narrow. However, with refinery attacks continuing to take production offline globally, propane deserves a closer look. If export demand accelerates as a result of tightening global supply, propane could quickly become a premium commodity in the open market, pushing prices higher for U.S. consumers even during a period of seasonally low demand. We are watching this closely going into the summer-fill season.
As always, if you have any questions please feel free to give us a call. Have a great rest of your week and weekend!
Best regards,
Jon Crawford
Sources: Bloomberg, Reuters, Wall Street Journal
Happy Friday!
Energy markets experienced historic volatility again this week as the war with Iran continues to dominate global oil trade. Prices briefly surged above $115 per barrel early in the week before swinging wildly in both directions as traders reacted to military developments, production shutdowns, and the continued closure of the Strait of Hormuz. Even after massive swings during the week, crude oil now looks set to close near $100 per barrel, marking another strong weekly gain.
Below is a breakdown of the major developments from March 9th through March 13th.
The war in Iran remains the central driver of global oil markets. Over the weekend, Iran named a new Supreme Leader following the death of Ayatollah Khamenei. The new leadership immediately signaled that Iran would not surrender, although they attempted to ease tensions with neighboring countries after earlier attacks. Those efforts quickly collapsed after Iran launched additional missile strikes, including one targeting Turkey again and additional attacks against Israel.
The United States and Israel responded with the heaviest strikes of the war so far on Tuesday, targeting Iranian military and drone facilities. The goal appears to be limiting Iran’s ability to continue attacking oil infrastructure and shipping routes. While drone strikes have slowed due to apparent ammunition shortages, missile attacks continue.
Iran’s broader strategy has become clearer as the week progressed. Rather than attempting to win militarily, Iran appears to be trying to leverage the global economic impact of the war by disrupting energy flows. By threatening or attacking ships in the Strait of Hormuz, Iran is attempting to create enough pressure from high oil prices that international actors force a ceasefire.
Despite heavy bombing of Iranian targets, the Strait remains effectively closed. Iran confirmed this week that the waterway will remain closed until the war ends. Drone attacks have continued against neighboring countries and ships in the Gulf, challenging earlier claims that Iran’s long-range strike capabilities had been destroyed. The United States continued to expand its military presence in the region this week. On Friday, the Pentagon deployed a Marine Expeditionary Unit carrying roughly 2,500 Marines to the Strait region. At the same time, the U.S. eliminated multiple Iranian vessels suspected of attempting to lay naval mines in the shipping lanes earlier in the week.
The possibility of further escalation remains high, especially as discussions emerge around deploying special forces to secure Iran’s nuclear material if the conflict drags on. The shutdown of shipping routes through the Strait of Hormuz continues to disrupt global energy supply chains at an unprecedented scale. Roughly 20 million barrels of oil normally pass through the Strait each day. With ships halted for nearly two weeks, over 300 million barrels of oil are now effectively delayed from reaching the market. The situation is creating a cascade of disruptions across the global economy. Liquefied natural gas shipments and fertilizer cargoes have also been caught in the backlog, raising concerns that prolonged closure could affect electricity generation and even global crop planting.
Production across the Middle East has also been severely cut. Gulf nations have cut approximately 10 million barrels per day of output as storage facilities fill up with nowhere to ship oil. Iraq reduced production by roughly 70 percent, while Kuwait continues to declare force majeure on export contracts. The United Arab Emirates is also preparing to shut down additional production if exports cannot resume soon. Even if the Strait were to reopen immediately, it would take time for production to ramp back up and for ships to clear the backlog.
Some limited movement has begun to emerge. A small cluster of ships approached the Strait earlier this week, suggesting that some operators may attempt to resume shipments cautiously. An Indian tanker successfully passed through the Strait on Friday, providing a brief moment of optimism, although the overall shipping situation remains extremely fragile. Meanwhile, several energy companies are continuing to pursue alternative supply. Chevron and Shell both announced they are moving closer to long-term supply deals with Venezuela. The deals would not do anything to move the needle in the near term, but offer some relief in the coming years.
Global political maneuvering has intensified as governments attempt to stabilize the oil market. The G7 met this week to coordinate the potential release of global strategic reserves. The International Energy Agency has already announced a massive 400-million-barrel reserve release, nearly triple the largest coordinated release in history. Despite these efforts, the market reaction has been muted because the supply disruptions involve transportation rather than simply a shortage of stored oil.
President Trump also announced a 150-million-barrel release from the U.S. Strategic Petroleum Reserve midweek. Even that large release failed to meaningfully reduce prices, highlighting how significant the shipping disruption has become. In an effort to stabilize global supply, the United States also issued a 30-day waiver allowing Russian oil exports to continue flowing to all countries. India remains one of the primary beneficiaries of the waiver, helping ensure that at least some global supply continues to reach the market while Middle Eastern shipments remain uncertain.
Another geopolitical development worth noting is China reopening a rail link to North Korea for the first time in six years. While not directly tied to oil markets, the move suggests China may be expanding strategic relationships while Western attention remains focused on the Middle East. Meanwhile, Trump held discussions with Vladimir Putin regarding both the Iran conflict and the possibility of ending the war in Ukraine. Trump indicated he may be willing to lift sanctions on Russian oil if Russia agrees to meaningful peace negotiations with Ukraine.
Economic indicators continue to send mixed signals, but energy prices are quickly becoming the dominant factor for inflation expectations. Consumer prices rose 2.4 percent year over year in February, but that number will almost certainly move higher in the coming months as the energy shock from the Iran war filters through transportation, manufacturing, and food supply chains. The U.S. dollar has remained surprisingly strong throughout the conflict, which has helped limit even larger spikes in crude oil prices. Normally such extreme geopolitical events would cause much sharper price increases.
Still, the risk of broader economic disruption remains significant. If the Strait remains closed for another week or more, certain countries could begin facing real energy shortages. The disruption to fertilizer shipments could also create ripple effects for global agriculture if planting seasons are affected. And the US economy will start to contract.
Chicago spot markets experienced extreme volatility this week as traders struggled to price both the surge in crude oil and rapidly shifting diesel fundamentals. Diesel differentials have collapsed while crude prices soared, creating an unusual market structure. The spot market is attempting to balance refinery maintenance season, limited local inventories, and rapidly changing global crude prices. Despite the falling differentials, the overall cost of gasoline and diesel continues to rise sharply due to the higher price of crude oil. Until ships begin moving through the Strait of Hormuz consistently without the threat of attack, I expect retail gasoline and diesel prices to continue rising.
Propane markets were finally pulled into the broader energy volatility this week, although the price reaction has been far more muted than crude or diesel. Inventories remain relatively strong as the winter heating season winds down. While prices experienced significant swings during the week, propane is currently holding relatively flat overall. Looking ahead, propane may begin to decouple from crude oil prices. As crude production increases globally, propane supply will naturally increase as well. Combined with seasonal demand declines after winter, propane prices may actually weaken heading into summer unless export demand increases significantly.
As always, if you have any questions please feel free to give us a call. Have a great weekend!
Best regards,
Jon Crawford
Sources: Bloomberg, Reuters, Wall Street Journal
Happy Friday!
Crude oil markets experienced one of the most volatile weeks in years, with prices set to book their largest weekly increase since 2020. The surge was triggered by a dramatic escalation in the Middle East after the United States and Israel launched strikes inside Iran over the weekend that killed the head of Iran’s ruling leadership. Iran responded immediately with retaliatory attacks on U.S. bases and neighboring countries across the region. In the days that followed, the conflict spread quickly through shipping lanes, oil infrastructure, and regional security alliances, placing the global energy market in a holding pattern as traders assess how long disruptions could last.
The most significant development this week was Iran’s decision to effectively close the Strait of Hormuz after attacks on oil tankers in the region. The strait is the most important shipping bottleneck for crude oil in the world, normally carrying roughly 20 percent of global oil supply. As ships halted entry, more than 150 vessels were forced to wait outside the region, immediately tightening global supply expectations. The conflict intensified throughout the week. Iran launched missile attacks into neighboring countries including Turkey and Azerbaijan and struck vessels operating in the Gulf. Two oil tankers were attacked near Kuwait, with one vessel leaking crude into the ocean. In response, the United States offered to deploy naval escorts to protect cargo ships through the strait and also sank an Iranian warship earlier in the week. Despite these efforts, uncertainty around safe passage continues to keep shipping activity extremely limited.
President Trump escalated the rhetoric further on Friday, stating that the United States will not accept a negotiated compromise with Iran and that the outcome will be either full surrender or continued conflict. The statement pushed crude prices higher again as traders increasingly believe the conflict could last longer than originally expected. At the same time, Trump has given Iran roughly two weeks to respond diplomatically before further escalation. Beyond the immediate military conflict in Iran, the war is beginning to pull additional countries into the tension. Israel ordered evacuations in Beirut and is preparing for potential operations against Hezbollah, while Lebanon and Israel have continued exchanging fire along the border.
The disruption to oil shipments quickly translated into production shutdowns across the Middle East. With shipping lanes blocked and tanker costs skyrocketing, several countries have begun reducing output simply because storage is filling up. Iraq has already cut roughly half of its production, around 1.5 million barrels per day, while Kuwait shut its output after storage facilities reached capacity. Qatar is warning that other Gulf producers may soon face the same issue if exports cannot resume within the next couple of weeks. In addition, portions of refined production in the United Arab Emirates, Qatar, Israel’s Kurdistan region, and other locations were temporarily halted due to security concerns and logistical constraints. Saudi Arabia and the UAE have pledged to increase production to offset lost barrels from Iran, but without open shipping routes it remains difficult to move those barrels to market.
Despite the strong rally in crude prices, U.S. shale producers have been hesitant to increase production quickly. Many companies remain cautious about committing capital until they have greater clarity on whether current price levels will hold. If the conflict resolves quickly and prices fall back, producers risk investing heavily in new drilling only to see prices collapse again.
Meanwhile, refined product markets are beginning to show stress. Diesel supplies are tightening globally as Asian markets struggle to source barrels. The United States, Mexico, and Venezuela are holding onto their inventories, leaving fewer supplies available to ship overseas. Diesel shortages can have significant economic implications because diesel fuels global freight, agriculture, and industrial activity. If diesel supplies tighten further, economic slowdowns can occur rapidly. China is playing a major role in refined product dynamics. The country halted exports of diesel and gasoline this week in order to prioritize domestic supply, effectively tightening global refined product markets even further. In addition, China is sitting on 1B barrels of oil in stockpile, effectively cutting off any need for oil shipments. At the same time, China’s economic growth forecast was revised down to 4.5 percent, the slowest pace in decades. While that weaker growth outlook could eventually reduce oil demand, China’s current strategy of stockpiling refined products is temporarily supporting prices.
The war is also reshaping geopolitical relationships in the global oil market. India continues to rely heavily on Russian oil to maintain supply, especially as Middle Eastern shipments remain uncertain. In response, the United States issued a temporary waiver allowing India to continue purchasing Russian crude to help maintain stability in the global market while the Iran conflict unfolds. At the same time, the United States and Venezuela resumed diplomatic relations this week. The move is designed to encourage additional oil investment in Venezuela and increase future supply capacity. Opening Venezuela’s oil sector to international investment could eventually bring significant additional barrels to market, though infrastructure limitations mean it would take time for production to grow meaningfully. However, the broader geopolitical landscape remains fragile. With the United States heavily focused on the Middle East conflict, some analysts are watching other global flashpoints closely. The possibility of China taking advantage of distracted U.S. military resources in the Pacific, along with North Korea remaining unusually quiet, is creating additional uncertainty in global security dynamics.
Even as geopolitical risk dominates markets, economic data continues to send mixed signals. The EIA reported a larger than anticipated build in crude oil inventory, but not enough to even move the needle a blip on crude oil prices. In addition, all economic data this week for the US showed signs of economic weakness. As of right now, the most money ever is being borrowed from 401k’s as consumers handle high credit card debt and living expenses. The US jobs report showed a loss of around 100k jobs last month, and the unemployment rate ticked higher to 4.7%. Although all the economic data this week in the US supports lower oil prices due to projected lower oil demand, prices are fixated on the Iran conflict until it ends.
The Chicago Spot Market experienced dramatic price movement this week as diesel prices surged nearly 80 cents per gallon. Several factors contributed to the spike. Chicago had previously shipped large volumes of diesel to the East Coast during earlier price arbitrage opportunities, which depleted local stockpiles just as refineries are preparing for seasonal maintenance. Although the Group Spot Market refining system remains relatively long on diesel supply, traders are reluctant to release those barrels because doing so would leave the region short during their refinery turnaround season. As a result, the Chicago spot market remains extremely tight. Gasoline prices also rose during the week but at a slower pace than diesel. Gasoline prices increased roughly 30 cents per gallon, and with crude prices elevated I expect retail gasoline prices to move above $3 per gallon in the near term. Diesel prices will likely rise even further, moving well above $4 per gallon at the pump as crude oil remains elevated.
Propane markets have remained relatively stable despite the volatility in crude oil prices. U.S. propane inventories remain strong, supported by continued domestic oil production and strong storage levels throughout the winter. Unless crude oil prices remain elevated for an extended period, propane prices are unlikely to experience a major surge. With winter nearing its end and demand beginning to decline seasonally, propane markets should remain relatively well supplied along with price stability.
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, Reuters
Happy Friday!
The following is a summary of the past two weeks. Crude oil prices are closing out a volatile stretch of trading over the past two weeks with WTI hovering in the upper mid-$60s after briefly touching the highest levels in more than nine months. The market has been whipsawed between escalating geopolitical tension and increasingly mixed economic data. At this point, there is clearly a sizable geopolitical premium built into crude — many traders estimate anywhere from $8 to $10 per barrel tied specifically to Iran risk.
Two weeks ago, prices surged as Ukraine peace talks collapsed after only two hours and Iran tensions escalated sharply. Iran also floated the possibility of blocking portions of the Strait of Hormuz, Russia and Iran conducted joint naval maneuvers, and the U.S. signaled readiness for a multi-week campaign if nuclear talks fail with a massive buildup of naval presence in the region. This week Trump has now given Iran roughly 15 days before potential military action. Negotiations in Geneva started this week. Although talks have resumed several times, there is still no agreement, and both sides remain far apart on key issues. If talks break down completely, I believe WTI could quickly push toward $70 per barrel. However, if a deal materializes, much of that premium would likely unwind.
OPEC is clearly watching the Iran situation closely. Midweek, OPEC hinted at adding roughly 150,000 barrels per day starting in April. The message is clear: Saudi Arabia and the UAE are signaling they are prepared to replace Iranian barrels if necessary. That announcement alone acts as a potential ceiling on runaway crude oil prices. But at the same time, Saudi exports have fallen sharply, potentially reflecting softer global demand amid tariff friction. Announcements of lower demand usually lower oil prices, but geopolitics continue to dominate the crude oil trade.
On the supply side, the data has been inconsistent. The EIA reported a very bullish 9-million-barrel crude draw two weeks ago along with large product draws, helping push WTI through the $65 resistance level. Yet this past week, the EIA showed a massive 16-million-barrel build in crude inventories, underscoring how difficult it is to read true demand trends right now. Meanwhile, OPEC production dipped in January due to temporary setbacks in Nigeria and Libya, and Russian drilling activity has fallen to its lowest level since 2021. Sanctions and Ukrainian attacks are clearly creating pain on Russian oil flows, although Russia continues offering steep discounts to keep barrels flowing.
India remains a pivotal buyer of crude oil. The U.S. struck a deal allowing India access to Venezuelan crude while simultaneously lifting sanctions on Russian oil for smaller Indian refiners — a move that upset both the EU and Ukraine. However, India is increasing purchases of cheap Saudi barrels due to Saudi Arabia losing out on selling to China. China continues to absorb discounted Russian supply. Even though smaller Indian refiners have said they will reduce Russian imports, I do not believe India will ever sever ties with Russia. The logistics and pricing advantages are too compelling.
Venezuela continues to climb back toward 1 million barrels per day, and additional production growth is possible in 2026 if infrastructure investment materializes. Guyana is also accelerating output, with production expected to exceed 1 million barrels per day in the near future at breakeven costs near $35 per barrel. The development further supports the structural surplus narrative for 2026.
The four-year anniversary of the Ukraine war served as a reminder of how much the energy landscape has changed. Russian oil revenues have reportedly halved in February, yet Moscow shows little willingness to compromise. Russia has even signaled potential naval escorts for oil shipments, while Ukraine claims cruise missile use has escalated the conflict. Libya is inviting Western investment, pushing Russia further out of North African refined markets causing further tension with the West. Cuba is tested new Russian oil shipments this week but so far ships have been diverted. But the U.S. is selectively allowing Venezuelan crude sales to Cuba’s private sector while maintaining pressure on government entities. Again, the move continues to put pressure on Russian oil exports.
Shipping costs through the Gulf have surged to six-month highs as charter rates nearly tripled amid Iran tensions. If shipping constraints persist, freight alone could add further upward pressure on crude. We have not experienced higher crude oil prices from shipping cost increases in probably a decade.
Macro signals are beginning to complicate the picture. Fourth-quarter revised U.S. GDP printed at just 1.4%, a significant miss versus expectations near 3%. Tariff friction appears to be weighing on growth. Durable goods and factory orders dipped, consumer debt expansion is accelerating, and Jamie Dimon from Chase Bank publicly warned of early signs reminiscent of 2008 stress in credit markets. The Supreme Court striking down tariffs this past week as illegal — followed by immediate retaliatory tariffs — triggered sharp equity volatility. If tariff refunds approach $200 billion as suggested, government debt pressures could intensify further adding volatility to the markets.
Inflation, however, cooled to 2.4% year over year from 2.7%, supporting rate-cut expectations. The value of the dollar has continued to decline over the past two weeks, which is quietly keeping oil prices a bit elevated. A weak dollar combined with geopolitical tension explains much of crude’s recent strength despite soft growth data.
From my perspective, looking at everything over the past two weeks, the Iran situation is becoming technically overbought. There has been no actual supply disruption, and global inventories remain stable to elevated. If the Iran situation stabilizes, crude prices could drop dramatically. However, until there is a deal with Iran, volatility with remain steady.
The Chicago spot market has rocketed higher over the past two weeks alongside crude. Diesel has been the standout, climbing nearly 35 cents per gallon. A significant volume of barrels from Chicago continue to move toward the Northeast to meet heating demand following repeated winter storms. The March prompt contract expired on February 25th and the shift to April created additional volatility, especially for gasoline as refiners transition from winter to summer RVP specifications. Summer gasoline is more expensive to produce, which naturally lifts pricing into driving season.
Gasoline price remains relatively stable versus NYMEX, but diesel is inflated. If Iran tensions ease and temperatures moderate, diesel could fall as much as 40 cents per gallon rather quickly. For now, however, I still expect both gasoline and diesel prices at the pump to edge higher in the near term.
Propane markets have continued their steady journey this winter. Logistics are moving more smoothly and allocations have eased. Assuming no major late-season polar vortex, the worst of winter distribution challenges appear to be behind us. That said, March and April are projected to run colder than normal. I would not be surprised to see above-average propane consumption into spring. If you track your own tank levels, it would be wise to stay attentive through April.
As always, if you have any questions, please feel free to give us a call. Have a great weekend!
Best regards,
Jon Crawford
Sources: Bloomberg, Reuters, and Wall Street Journal
Good morning,
I hope this message finds you well. I did not send an update last Friday. With a heavy heart, I would like to announce my father Jim Crawford passed away last Tuesday. I have attached his obituary link below. I will greatly miss my father as my mentor in the family business, but most importantly my best friend. I will send a newsletter as usual this Friday. Have a great rest of your week.
https://www.kratzfuneralhome.com/obituary/James-Crawford
Best regards,
Jon Crawford
Happy Friday!
Oil prices traded mostly flat to end the week as markets digested the continued stalemate in talks with Iran. WTI looks to close near $63 per barrel, continuing a gradual pullback from the recent peak near $66 when tensions escalated around potential U.S. strikes. Tensions with Iran remain front and center. Trump is reportedly sending a second aircraft carrier to the region and met with Netanyahu midweek with Iran high on the agenda. At the same time, Trump warned ships operating near Iranian waters, which briefly supported prices earlier in the week. Iran continues to threaten retaliation if strikes occur. For now, the market appears to be assigning a probability to escalation without fully pricing in a disruption. OPEC+ has begun dropping hints about a possible production increase. I believe the messaging is strategic. If Iranian production were to be disrupted, other members appear willing to step in quickly to calm markets. The signal alone is enough to put a bit of a ceiling on prices.
India has now received a license to purchase Venezuelan crude, signaling strong appetite for heavy sour barrels. The move could help revive Venezuela’s infrastructure if capital begins flowing back in. In addition, Venezuela’s new leadership has allowed peaceful protests for the first time in years, a possible sign that the government is attempting to re-engage with Western partners. India also seized three oil tankers tied to black-market activity, reinforcing its commitment to policing shadow fleet activity. However, while India announced smaller refiners would halt Russian purchases in March and April, I remain skeptical that India will fully sever ties. Russian barrels remain logistically convenient and competitively priced. Russia’s crude output declined for a second consecutive month in January as sanctions complicate marketing efforts. Whether the declines are structural or temporary remains to be seen. If sustained, it could provide leverage for Ukraine in negotiations. At the same time, Cuba is set to begin purchasing Russian crude, giving Moscow another outlet for sanctioned barrels.
The IEA again amended its outlook, now calling for a roughly 2 million barrel per day surplus in 2026, driven largely by new barrels from West Africa and steady OPEC production. The downgrade to demand expectations pressured prices on Thursday. Kazakhstan has already returned to roughly 60% of peak production and expects to be fully restored by month end, adding more supply back into the system. Venezuela has also climbed back to roughly 1 million barrels per day after restoring a key facility, and further gains remain possible into 2026.
In U.S. economic news, the EIA report was a bit bearish announcing further increases in crude oil inventories despite some production cuts. In addition, U.S. CPI came in softer than expected, with year-over-year inflation easing to 2.4% from 2.7% last month. The data continues to support expectations for rate cuts. The dollar fell for a fourth straight day midweek, which helped underpin crude prices. A weaker dollar remains one of the few non-supply factors capable of putting a floor under oil. However, housing data showed home sales falling more than 8% in January, and consumer sentiment continues to soften. But the labor market remains steady. The U.S. added 130,000 jobs in January and unemployment dipped to 4.3%, offering modest support to the demand outlook. Those trends could weigh on future oil demand if the broader economy slows. Again, the U.S. is experiencing bullish and bearish situations that affect the price of crude oil. And a not as common data point that I watch, weather may become a larger wildcard later this year. Meteorologists are predicting an El Niño pattern, which historically brings warmer overall temperatures but more intense storms, heavier rainfall, and an active hurricane season. With increased production and refining concentrated in the Gulf, a busy hurricane season could present more meaningful disruptions than in prior years.
When looking at all the previously described data at a 20k foot view, the underlying theme remains the same: geopolitical tensions may drive short-term volatility, but a structural oil surplus still looms in the world marketplace.
The Chicago spot market saw gasoline differentials weaken this week as demand remains soft and inventories appear comfortable with several winter months still ahead. Diesel prices stayed elevated as the Northeast continues to struggle sourcing barrels, though the spread between Chicago and the Northeast narrowed. Diesel traded mostly flat on the week, so I do not expect significant movement at the pump in the immediate term. As winter blending requirements begin to ease and #1 diesel moves out of the retail system, pump prices should gradually decline. Gasoline prices fell this week, and I expect lower retail gasoline prices next week.
Propane retail prices eased modestly as warmer temperatures allowed shipping logistics to catch up. Allocations west of us have been lifted and rail terminals in Wisconsin are reporting healthier supply levels. If February avoids another cold snap, I expect propane retail prices to decline further this month and into March.
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
Happy Friday!
Oil prices traded mostly flat to start Friday after leveling out much of this week’s volatility. Traders continue to watch developments around Iran closely, as talks are expected to focus on nuclear activity, missile programs, and Iran’s support of militant groups in the region. Any real progress—or breakdown—could quickly shift sentiment, but for now the market is waiting for clarity.
Earlier in the week, crude gave up a sharp 3% rally after Iran confirmed it would participate in negotiations with the U.S. The back-and-forth has been extreme. On Wednesday, prices jumped more than 3% after Iran initially said it would not negotiate, followed by reports of a drone incident involving a U.S. carrier and harassment of a U.S. vessel in the Strait of Hormuz. President Trump made it clear that failed negotiations could lead to strikes, raising fears of a short-term oil shock. While any disruption would likely be temporary, it would still be felt quickly by consumers.
OPEC+ met on February 1st and agreed to keep output unchanged, offering no guidance on future policy. The decision was widely expected and had little market impact. Still, maintaining current production levels continues to walk a fine line, as global supply growth is inching closer to surplus territory heading into 2026. Saudi Arabia cut its official selling prices alongside Russia, signaling a continued push to protect market share in Asia. Russia followed up by announcing additional price cuts to China, attempting to offset potential losses from India. After India’s recent trade deal with the U.S., Russia discounted Urals crude to roughly $10 below Brent, a level that remains very attractive for India’s oil companies. At the same time, Russian and Iranian black-market crude continues to build, forcing other producers to keep volumes moving through official channels. India truly remains the key swing factor. While Trump has publicly stated that India should cease buying Russian oil, India has remained mostly silent and appears likely to continue purchases. Russia still offers the fastest and cheapest supply to India. Meanwhile, the U.S. is considering selling Venezuelan crude directly to India as part of a broader effort to cut Russian cash flows tied to the war in Ukraine. That move, however, could divert barrels away from Gulf Coast refiners that were expecting increased Venezuelan supply.
In other geopolitical news, the nuclear arms treaty between the U.S. and Russia officially expired for the first time in over 30 years. Trump has expressed interest in renegotiating a deal that would include China, acknowledging how global power dynamics have shifted. While not an immediate driver of oil flows, the development adds to the broader geopolitical backdrop the market continues to digest. In the Middle East, Israel reopened the border between Egypt and Palestine, only to follow with renewed military strikes shortly after, shaking confidence in the durability of the truce. These developments remain secondary to oil supply economics for now but add to overall regional uncertainty.
The U.S. avoided a government shutdown late Tuesday, providing some relief to broader markets. Manufacturing data in the U.S. came in weaker than expected, with tariffs starting to weigh on activity. America and China appear to be slowly decoupling economically, though neither side wants to abandon trade talks. The uncertainty adds another layer of risk to demand forecasts. In Asia, factory activity expanded in January, offering a modest floor to oil prices, but continued supply growth still outweighs demand gains for now. Longer-term investment trends continue to point toward ample supply. Major oil companies are increasing investment in West Africa, hoping to unlock reserves similar to what was discovered offshore Brazil. Shell is also evaluating offshore investments in Venezuela, which would make it the first major producer after Chevron to move into the country. If approved, these projects would add more heavy sour crude to the global market, putting pressure on light sweet barrels from places like Saudi Arabia.
The Chicago spot market followed crude prices higher this week, with diesel remaining the most volatile product. Diesel prices swung sharply as cold weather and heavy precipitation in the Northeast continue to drive strong heating oil demand with tight supplies. While Midwest production is running well, significant volumes are being pulled east at premium prices, leaving little spare capacity elsewhere. Gasoline prices also moved higher but with much smaller swings. I expect diesel prices to remain elevated until Northeast weather moderates and logistics improve, while gasoline prices should stay relatively stable.
Propane prices continue to trade in a narrow range, but logistics remain a major challenge across states east of the Rockies. Pipeline allocations are still tight, and while warmer weather next week should relieve some pressure, there is a considerable backlog to work through. I expect shipping and logistical issues to persist through much of February. Avoiding a polar vortex in Wisconsin would go a long way toward preventing further stress on the system.
As always, if you have any questions, please feel free to give us a call. Have a great weekend!
Best regards,
Jon Crawford
Happy Friday!
Crude oil prices paused late in the week after a sharp two-week rally, with WTI pulling back towards $65/barrel. The pause came after President Trump announced the appointment of a new Fed Chair, Governor Kevin Warsh, which pushed the dollar higher and capped crude’s momentum. Trump also signaled a shift in tone toward Iran, saying he plans to pursue talks with Iranian leaders rather than immediate military action. That combination removed some of the geopolitical premium that had built into the market.
Earlier in the week, oil prices surged above $65 per barrel after Trump ordered a large naval and air deployment into the Middle East and demanded a nuclear deal with Iran, warning of strikes if negotiations fail. Markets reacted strongly to the escalation, especially given the confusion around why a deal is being demanded now if last year’s strikes were said to have crippled Iran’s nuclear program. The situation remains volatile, and any direct strike on Iran would likely face resistance from regional allies and could trigger a severe response against U.S. assets in the Middle East.
On the supply side, several offsetting forces are at work. U.S. production has been hit hard by extreme winter storms, with roughly 15 percent of daily output—around 2 million barrels per day—temporarily shut in across the East of Rockies. Kazakhstan also experienced outages, but officials now say full production could return within a week, helping to put downward pressure on crude oil prices. While U.S. production losses supported prices earlier in the week, demand has also fallen due to the same storms, keeping the overall impact muted. However, diesel prices have sky-rocked from the events due a massive increase in heating oil demand out East. In addition to US production predictions, OPEC+ has signaled it will keep output steady at its February 1 meeting, preferring higher prices and seeing little incentive to add supply.
Venezuela continues to re-enter the global oil market. CITGO purchased Venezuelan crude for the first time since 2019, buying heavy sour barrels from Trafigura that are well-suited for Gulf Coast refiners. U.S. officials are also working on a broader framework to lift sanctions and allow more Venezuelan crude exports involving both U.S. and foreign companies. While near-term volumes would be modest, in an already well-supplied market the additional barrels could eventually pressure prices lower. At the same time, China has backed away from Venezuelan crude purchases now that the U.S. is controlling sales, instead turning its attention toward Canada, which has been advancing trade talks and offers west-coast export capacity.
Russia remains aggressive on pricing. Moscow cut crude prices to India to the lowest levels since 2022, as shipping barrels to China becomes more challenging. Even though major Russian producers are restricted, India continues buying from non-sanctioned firms, keeping Russian cash flow moving to fund the war in Ukraine. Lukoil announced the sale of certain assets to Carlyle Group following new U.S. sanctions, though operations and oil flows are expected to continue with minimal disruption. Geopolitically, the war in Ukraine escalated again this week. Russia struck Ukraine’s second-largest city, knocking out power and heat during a deep freeze. At the same time, Ukraine and the U.S. finalized security guarantees, pending a formal signing, which could strengthen Ukraine’s leverage in negotiations. Putin surprised markets by agreeing to temporarily halt strikes on Kyiv until February 1 to allow space for peace talks, but traders largely ignored the gesture given how often ceasefire efforts stall.
Stateside signals remain mixed. The government appears close to avoiding a shutdown, which helped stabilize the dollar. The Fed held rates steady and noted early signs of inflation ticking higher. Normally that would support the dollar and weigh on crude, but oil has been trading almost entirely on geopolitical risk rather than monetary policy. Longer term, the dollar continues to weaken as other economies outperform and global capital seeks alternatives, a trend that could put a floor under oil prices even as Trump pushes for cheaper energy. The EIA reported a small draw in crude inventories this week alongside modest builds in refined products. With refineries operating at reduced rates due to weather and exports disrupted, inventories could rebuild once conditions normalize and facilities return online.
In Chicago, spot markets remained at relatively low differentials to NYMEX, but rising crude prices, weather-related production shut-ins, and strong heating demand pushed diesel higher again this week. Diesel prices climbed sharply, over 30 cents per gallon, while gasoline continued to trade sideways as winter demand remains soft. I expect diesel prices at the pump to move higher, but gasoline prices should remain relatively stable.
Propane supply is ample nationally, but logistics east of the Rockies continue to deteriorate. Nearly every pipeline in the region is on strict February allocation, and Canada is diverting railcars toward the East Coast where demand is stronger. Wisconsin has received its contracted rail supply, but spot rail pricing has surged. I had hoped logistics would improve in February, but the broader picture now looks worse than January. Until movement constraints ease, I unfortunately do not expect retail propane prices to move lower.
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