Happy Friday!
This week brought a more tempered level of volatility in the crude oil markets compared to prior weeks, but there was still no shortage of impactful news. The biggest driver of crude oil prices continues to be the evolving trade relationship between the United States and China, along with economic data released from both countries. China reported stronger-than-expected GDP growth for Q1 of 2025, showing a 5.4% year-over-year increase. On the surface, this appeared to be a bullish signal for oil demand, especially considering China’s status as one of the world’s largest crude importers. However, the story beneath the headline was less encouraging. Many analysts attributed the growth to a temporary “pre-tariff” export rush. Ongoing deflationary pressure, weak domestic consumption, and a shaky property sector still threaten China’s ability to sustain growth through the rest of the year. In contrast, the U.S. economy contracted by 0.3% in Q1, marking the first quarterly decline since 2022. The contraction was largely driven by a surge in imports ahead of anticipated tariffs, combined with slowing consumer spending and government cutbacks. Although one quarter of negative GDP growth does not technically define a recession, many economists raised red flags. The IMF pegged the probability of a U.S. recession at 40%, and J.P. Morgan raised their call to 60%.
However, things shifted slightly on May 2 when China’s Ministry of Commerce publicly acknowledged that they are assessing proposals from the U.S. to reopen trade talks. This was the first recognition from China that negotiations might be on the table since the latest escalation in tariffs. According to officials, the U.S. has expressed interest in dialogue, and China is evaluating the sincerity of these efforts. But Beijing also made it clear: the U.S. must first remove unilateral tariff hikes before any formal talks can begin. The statement was seen as an olive branch, but it came with conditions. While the path forward is uncertain, this is the most constructive tone we’ve heard in weeks.
In terms of supply-side news, crude oil prices were under pressure this week due to a 3.76 million barrel build in U.S. crude inventories. OPEC+ signaled that they may move to increase production again in June. Saudi Arabia specifically indicated that they are comfortable with lower prices and may support a faster pace of output increases. That comment caused a quick drop in oil prices as some traders began to price in the possibility of a price war. OPEC+ will meet next week, so we should have more clarity then. Then, in a surprise geopolitical turn, President Trump announced on May 1 that secondary sanctions would be applied to any country or company purchasing Iranian crude or petrochemical products. The threat sent crude oil prices sharply higher mid-week. The market’s concern is that this could disrupt a significant portion of Iranian crude going to China, which remains Iran’s top customer. Traders reacted quickly, and the spike reminded everyone how sensitive the energy markets remain to any shifts in foreign policy or geopolitical risk.
In local markets, the CME spot market moved slightly lower along with crude oil. Gasoline and diesel supplies remain tight across much of the Midwest. Although refinery maintenance is starting to wind down, the supply chain is still trying to rebalance. I don’t expect much movement at the pump next week. If anything, we could see a small drop in retail prices as supply stabilizes.
Propane prices in the spot market also moved a bit lower this week. However, the forward curve has remained steady. Midwest inventories are still running below the five-year average, and if U.S. oil companies slow drilling to defend price, propane price could begin to decouple from crude oil. On top of that, lower inventories in the Midwest could increase our dependence on Canadian imports. And with trade tensions still brewing, the threat of tariffs on Canadian propane remains real. If tariffs are imposed, we could see a major price increase later this year. Right now, the current retail price of propane holds good value. Although we could see a small dip, I don’t expect a dramatic drop unless WTI crude drops below $55/barrel. Heating contracts for next season will be available soon. I recommend topping off your tank in the next few months and locking in some propane fixed-price gallons for next winter, especially with ongoing uncertainty around trade with Canada.
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