Tag Archives: Endeavor

Crack Spreads Breaking Your Wallet

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Happy Friday!

Oil is ending the week right around $87 a barrel, up for the third straight week.  And the reasons are pretty simple to understand.  The diplomatic situation with Iran continues to go nowhere. The interim ceasefire formally expired Monday. Iran declared a fully offensive military action is on the table.  Trump threatened to bomb Oman if they assist Iran controlling the Strait. Washington announced what it is calling an “economic D-Day” against Iran. And the cherry on top, Hormuz traffic stayed near zero. Here is what drove the market this week.

Monday opened with the clearest explanation yet for why peace talks keep failing.  The US intelligence is claiming that Iranian hardliners interpreted the entire diplomatic process of the most recent ceasefire was a delay tactic. Rather than engaging in diplomacy, they reportedly spent the past two months rebuilding missile infrastructure and mobilizing forces to widen the conflict. Iran is starting to release information saying they will inflict military conflict all over the Gulf to make sure that they are never attacked again. Their new militant position basically puts any imminent resolution on hold. On the physical side, Hormuz traffic collapsed over the weekend. Only five vessels crossed on Saturday, and not a single one on Sunday.  Trump told Americans to simply accept higher gasoline prices while the conflict continues. Middle Eastern producers are still finding ways to move some oil and that is helping keep a partial lid on prices. But the workarounds are not as efficient as crossing the Strait.

Tuesday pushed oil to a three-week high after Trump threatened to bomb Oman for its role communicating between Washington and Tehran.  The announcement was stunning considering that Oman has been a US security partner for decades and Oman has been trying to end the war. The Houthis launched missiles at Saudi vessels in the Red Sea. Another attack was reported in the Strait. The attacks made ships pause and only six ships crossed the Strait.

Wednesday saw WTI hit another high. Trump declared the US would subject Iran to an “economic D-Day.” The UAE suspended all financial and economic transactions with Iran. The ceasefire agreement was now fully expired, and Iran confirmed there is nothing to extend. Three China-linked supertankers turned around in the Strait. Hormuz traffic held at six vessels again for the day, falling between the ten day average.  The EIA weekly inventory report showed another major build in oil inventories. US crude stocks rose 4.4 million barrels to 428 million total.  The total crude inventories is now matching the five-year average for the first time in months. Refineries ran at 97.2% of capacity. At that rate there is no room for spare production.  The US refining market is maxes out.  Gasoline stocks rose slightly but remain 5% below normal. However, with higher gasoline prices and coming out of summer, the deficit is not going to be significant.  Distillate fell 1.5 million barrels and sits 13% below average. The diesel shortage is causing diesel price to rocket higher.  The US is entering into harvest season with low inventories and a major world appetite for diesel since the world inventory is short.  Therefore, the incentives for American refiners are much better to export diesel rather than selling at home.

On Thursday, US economic data was released that caused a bit of jitters in the markets. US government debt topped $40 trillion for the first time. The Treasury moved to increase buybacks of long-term bonds to try and calm markets, which sent 30-year yields sliding briefly.  But analysts warned the relief could be short-lived if oil prices and inflation continues. In addition, as the dollar loses value, higher crude oil prices will be supported.  In good news, Chinese refiners have been buying up Iraqi crude when available. China is refining for diesel at home.  This helps alleviate some of the pressure on world diesel supply.

Friday pushed oil toward $87 as Washington announced it would soon impose the toughest sanctions in Iran’s history.  The goal is to try and overthrow the Iranian leadership. The announcement added a second layer to the conflict instead of just focusing on reopening the Strait.  Iran responded by saying they would respond with devastating military attacks.  The amount of Iranian crude available to Chinese buyers is quickly running out.  Some are believing that this is a clear sign the naval blockade is working. At home, regular gasoline averaged $4.10 a gallon, up from $3.13 a year ago.  The continued economic struggles at home and the conflict in the Gulf are setting us up for higher prices for longer.

Chicago spot market followed crude oil prices higher.  Differentials have been healthy in comparison to NYMEX.  Therefore, there is more room for diesel and gasoline prices to run higher.  The mind-blowing crack spreads at $70/barrel are pushing diesel cost to record-setting highs in comparison to crude oil price.  For example, our current cost of diesel was last reported when crude oil was near $110-120/barrel. We are not even at $90/barrel!  Increasing prices of crack spreads mean that refiners are making more money per barrel of gasoline and diesel. Diesel prices have climbed over 75 cents from the lows in July.  And unfortunately, at this time, I don’t see any relief going into harvest.  The high cost of diesel for harvest will put further inflationary cost on food.  Gasoline prices continue their run at very high prices while the summer driving season winds down.  Although gasoline prices have not risen at the same rate as diesel, gasoline prices are high enough to start causing economic headwinds for consumers.  For now, the purchase strategy is to cost-average spot purchase.  The futures for diesel prices next year climbed almost 50 cents over the past three weeks!  Absolutely bananas!

Propane prices also followed crude oil prices higher this week.  In my opinion, propane has solidified a floor for spot pricing and future contracts as well.  Therefore, if possible, you should top off your tank before winter economics kick in.  On October first, winter index hits the market so there is a higher probability that propane spot prices will move higher in October, especially if crude oil prices remain high.

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

Shaking Your Head: That’s All You Can Do

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Happy Friday!

Oil is ending the week around $82 a barrel, up sharply from last Friday’s close. The diplomatic announcements kept coming all week, but so did attacks. Both the US and Iran now openly claim they control the Strait of Hormuz. The shipping data says neither is telling the full truth. We continue as we have over the past months with “believe it when I see it” territory. Here is what drove the market this week.

Monday started with some optimism. Iran and Oman reported their talks on new shipping lanes through the Strait were progressing smoothly, with a route map already agreed and only technical details left to finalize. But Iran immediately attached a full list of conditions for anything broader regarding opening the strait.  The demands include US compensation for attacks on Iran, an end to military threats, removal of the naval blockade, lifted sanctions, and release of frozen assets. Trump’s response was a bit passive. He told reporters the US is only semi-negotiating on Hormuz and is willing to let economic pressure build rather than order fresh strikes. The logic: crude prices have come down considerably from the war’s peak, giving Washington some room to wait. But that breathing room may be shrinking faster than the administration thinks. The SPR is at its lowest level since the early 1980s. The squeeze is sharpest in diesel.  Diesel is trading above $160 a barrel in Europe and hit simultaneously by Russia’s ongoing conflict with Ukraine. Reports from a major crude shipper stated that 15 of its vessels have been attacked transiting Hormuz since the war began. Saudi Aramco pushed back the restart of its Jazan refinery to August 30 after Houthi forces struck it again over the past weekend.

Tuesday brought a 5% surge in oil prices after Trump responded to Iran’s conditions list with a demand of his own.  Trump is demanding that Iran pay compensation for people killed in wars, attacks, and protests. The demand makes reopening the Strait harder, not easier. Pakistan, which has been quietly mediating throughout this war, signaled the two sides were getting closer.  The news pushed oil prices down a bit. But attacks started up again.  Houthi forces attacked a cargo ship in the Bab el-Mandeb, reportedly killing three crew members. A Libya refinery was struck by drones for the third time since the weekend, with Libya’s state oil company warning it may halt operations entirely if attacks continue. Hormuz traffic stayed minimal.  Only six vessels transited Monday.  As a reminder, the prewar daily average was 130 to 140 ships.

Wednesday was the week’s most data-heavy day.  The EIA weekly inventory report showed US commercial crude stocks jumped 17.4 million barrels.  This was the largest single-week build since January 2023. Crude imports jumped sharply as refineries continued running at 96% of capacity. Gasoline stocks dropped and remain 6% below normal. Distillates barely moved but are still running about 12% below average. The IEA’s monthly report delivered an eyebrow-raising report.  They claim that global oil markets face a supply shortfall of 1.8 million barrels a day this quarter.  That number is more than double earlier projections.  The predictions are based on renewed hostilities and shipping disruptions that could derail the expected Middle East production recovery. For 2026 as a whole, the IEA projects the widest supply deficit in five years. There was some welcome inflation news. Consumer prices rose 3.4% in July.  CPI report was cooler than both June’s reading and expectations. The main driver for lower CPI was the drop in gasoline prices throughout July. On the diplomatic front, Trump claimed the US has total control over the Strait of Hormuz. Tehran responded with continued insistence that the waterway stays closed unless Washington meets its conditions.

Thursday brought a reversal. Oil fell roughly 2% as OPEC cut its 2026 demand growth forecast for the fourth straight month. The SPR fell below 300 million barrels for the first time in almost 35 years. That is the emergency reserve America built specifically for moments like we are in with the war in Iran, Ukraine, and world oil supply disruption. The fight over who controls Hormuz took a strange turn. Iran’s paramilitary chief declared the strait is under the management and control of the Islamic Republic.  This was one day after Trump said the US had total control. Both claims can’t be true. Two oil vessels were attacked while transiting Thursday, which the UAE government is calling an Iranian attack. Russia’s refining sector added another issue to its ongoing crisis.  Their Orsk refinery was hit by a Ukrainian drone strike earlier in the week, shutting it down completely with repairs possibly taking six months. Russia, one of the world’s biggest oil exporters, imported its first-ever cargo of Indian gasoline this month. The reports continue to emphasize just how badly Ukrainian drone attacks have disrupted Russian refining capacity.

Friday pushed oil higher again as the US announced it would soon implement unprecedented new economic measures against Iran and confirmed the naval blockade would continue indefinitely. Treasury Secretary Bessent described an economic isolation campaign coming that would go beyond existing sanctions. At least four Asian refiners bought US crude this week as Hormuz remains effectively closed. Before the war, Asia sourced more than half its crude from the Middle East. In July, the region imported a record over 2 million barrels a day from the US instead. Russia’s share of India’s oil imports hit a record 50% in July, up 62% from a year ago, as the Middle East supply crunch pushed Indian refiners back to Russian crude. The US Senate passed legislation imposing 100% tariffs on buyers of Russian oil, raising pressure on India purchasing such a high volume of Russian crude. Ukraine offered Russia a Black Sea truce covering civilian targets today, even as it resumed near-daily refinery attacks and struck Russia’s Baltic port overnight. The US sold $25 billion of 30-year bonds at 5.216%.  This is the highest rate in a quarter century.  The sale is a sign investors are demanding more to finance the growing federal deficit. The bond sale is not directly about oil, but puts eyes on watching how the US dollar trades.

The Chicago spot market followed futures higher all week. Diesel jumped over 30 cents a gallon and gasoline rose over 20 cents. To put this in some context, diesel prices have now risen over 85 cents in just the past four weeks. At the current ratio of diesel to crude oil prices, we are hitting diesel cost levels that used to correspond to crude at over $100 a barrel, if not well over $110/barrel. If global diesel supply stays this tight with no major demand drop, retail diesel prices could push past $6 a gallon. I do expect to see both gasoline and diesel retail prices continue to rise at the pump heading into next week.

Propane again is playing the same song. Inventories are robust, price movements remain narrow, and the supply picture heading into fall looks healthy. That said, like a broken record, shipping logistics will cause a price spike at some point during winter.  They always do. It is exactly why we recommend topping off your tank at summer rates now and booking some heating gallons for the upcoming season.

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

Tolling Deal In The Strait Lowers Oil Prices?

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Happy Friday!

Oil is ending the week right around $82 a barrel.  This is down from where it started Monday. Every day brought new diplomatic signals and fresh attacks, often within hours of each other. The Iran-Oman talks over Hormuz progressed enough to move markets. So did the Houthi missile strike on a Saudi tanker near Yanbu. We are definitely still in “believe it when I see it” territory. Here is what drove the market this week.

Monday started with oil down sharply on hopes that diplomacy might actually be gaining traction. Trump said over the weekend that Iran and other Gulf states had asked for more time to finish a deal, and that talks would begin Monday. Iran’s foreign ministry said the opposite.  He said no talks were underway, no meetings were on the calendar. It is the same claim-and-deny pattern we have seen repeated for weeks. Here is what is real. OPEC+ approved a modest production increase of about 188,000 barrels a day starting in September, completing the unwind of production cuts first agreed back in 2023. On paper, that is more supply. In practice, the disruptions from this war have made most OPEC quota moves irrelevant. But when the strait eventually reopens and Gulf producers start pumping full speed, those barrels will matter. Hormuz traffic stayed thin over the weekend. The Bab el-Mandeb saw declining traffic too, down to just 18 vessels on Sunday from 28 on Friday. The world’s crude spare capacity has been draining for more than five months now, and it is noticeably thinner than it was in February.

Tuesday brought the week’s most whipsaw session. Prices rose early after fresh incidents in the Strait, then reversed hard and fell about 4% as Treasury Secretary Bessent said a deal to reopen Hormuz could come as soon as Tuesday or Wednesday.  Qatar confirmed draft language on a broader US-Iran agreement was already circulating. Qatar was careful to note that no direct talks between Washington and Tehran are actually happening yet. That combination was enough to erase the morning’s gains and more. On the supply side, US crude exports dropped to their lowest level in eight months in July, as the brief June peace deal temporarily flooded the market with Middle Eastern oil and cut demand for American barrels. One sobering detail buried in Tuesday’s news was that the US Army has possibly burned through virtually all of its long-range missile stockpiles during this war. That is not a small thing for any future escalations.

Wednesday pushed WTI higher after the Houthis struck a Saudi oil tanker near Yanbu.  Remember, the Red Sea port has been Saudi Arabia’s main export workaround since Hormuz closed. That attack landed the day after Qatar said mediators were making real progress. The optimism diminished quickly. Iran again denied any peace talks are underway, directly contradicting Trump’s statements. The core sticking point remains unchanged.  Iran wants control over ships entering the Strait of Hormuz. That is no longer a negotiating position for Tehran. It is a red line. The EIA inventory report gave the market a slight surprise. Crude stocks actually built by 2.5 million barrels to 407 million barrels, about 6% below the five-year average. Gasoline fell 1.6 million barrels and distillate dropped 3.5 million barrels, running roughly 12% below normal for this time of year. Refineries eased slightly to 96.5% capacity.

Thursday brought meaningful news on the development of controlling the Strait of Hormuz. Iran and Oman reached an understanding on a path for new shipping routes through the Strait.  The proposed arrangement would give Tehran control over ships entering the Gulf, with both inbound and outbound passing through Iranian waters.  There is a catch though.  US officials have repeatedly insisted they would never accept Iran controlling access to the strait.  So a potential military response from the US is back on the table if Oman and Iran agree to a deal.  Prices came back to roughly where they traded before the June ceasefire, but the underlying situation is more fragile now than it was in June. Iran’s negotiating position has strengthened, inventories are lower, and there are more shipping routes being disrupted. The Houthis struck two more Saudi tankers on Thursday, and Iran warned Gulf states that any new US attack on Iran would trigger retaliation against energy infrastructure across the region.

Friday looks to close the week slightly higher as investors weighed the Iran-Oman deal. Iran is seeking fees of 5-7% of cargo value from ships using Hormuz. Oman is pushing for around 3%. Washington wants no fees at all. There are still a lot of details to iron out going into the weekend.  Hormuz traffic fell to just 33 vessels for the full week Monday through Thursday, down from 50 the prior week. Only four vessels crossed on Thursday.  Saudi Arabia expects continued attacks from Iraqi militias operating under Iran’s Revolutionary Guard. In response, Saudi Arabia, Pakistan, and Turkey signed a joint defense agreement. One very interesting supply data point stands out from Friday’s data.  US imports of Saudi Arabian oil dropped to zero in July, yes, zero.  That is the first time that has happened since 1985. July’s jobs report came in far weaker than expected. Payrolls fell by 23,000, versus expectations of an 80,000 gain. The weak jobs data eases pressure on the Fed to raise rates next month.  However, a weaker dollar puts upward pressure on the price of crude.  Although the jobs report was weak, the economy itself grew at its fastest pace in three years last quarter further supporting crude oil prices on the demand front.

The Chicago spot market continues to run at full capacity. Prices for gasoline and diesel ended up lower for the week despite a large recovery in prices on Thursday. I still expect to see retail prices move lower heading into next week. Crack spreads continue to run hot with crude oil price in steep backwardation. Chicago differentials remain stable, but with refiners needing to sell every barrel they produce, the chances of a refinery running into an issue remain high. Hopefully we get through the rest of the summer without any major disruptions.

Propane prices again are boring and quiet.  Nothing much new to report. There was a small price dip mid-week that fully recovered the next day. Inventories remain healthy and well above the five-year average, so no red flags heading into fall. If you are able, I still recommend topping off your tank and contracting some gallons for next heating season.

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

Traders Are Getting Bored

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Happy Friday!

Oil is ending the week near $84 a barrel, up about 20% for the month of July. The market swung between optimism and fear almost every single day. A pause in U.S. strikes early in the week sent prices down sharply. Then the fighting came right back, the Houthi naval blockade of Saudi Arabia got more aggressive, and oil climbed back toward where it started. The pattern of this war keeps repeating itself. Here is what drove the market this week.

Monday started with the clearest diplomatic signal in weeks. Iran’s foreign ministry said the country is open to resuming negotiations with the U.S. Oman had formally presented Iran with a proposal to manage the Strait of Hormuz that would let Tehran collect voluntary fees for ships using it. Trump said the U.S. and Iran are having good talks and paused airstrikes specifically to give negotiations a chance. Oil dropped sharply on the news, at one point down more than 8% as the biggest single-day decline in more than three months. Then reality crept back in. Iran struck Saudi Arabia, Jordan, and Iraq with drones on the same day that Trump was calling for talks. The Houthis hit Saudi Aramco’s 400,000 barrel per day Jizan refinery over the weekend, forcing it to shut down. The pattern of this war has been: talk surfaces, oil drops, talks go nowhere, strikes resume, and oil climbs back. We have been through that cycle enough times that there is caution on any news stories. We are definitely dug in on “believe it when I see it.”

Tuesday added pressure from several new directions. A tanker was struck in the Strait while attempting to cross. The ship-to-ship transfer network that had been the Gulf’s main workaround slowed significantly following the latest Iranian attacks. And the Houthi threat to Saudi Arabia’s Red Sea export route increased. Saudi Arabia has been routing oil through its East-West pipeline to Yanbu precisely because Hormuz is no longer reliable. If the Houthis close that route too, the kingdom loses both of its export pathways at once. The diesel picture continued to decouple sharply from gasoline. U.S. refiners are producing distillate fuel at a near record, exporting massive volumes to South America and Europe. Gasoline is paying the price.  Output is below the five-year average, inventories are the lowest for this time of year since 2012, and pump prices are back above $4 a gallon. Refiners have every incentive to keep running hard on diesel as long as margins hold from tight world supplies.

Wednesday was the week’s most volatile day. Oil jumped nearly 5% after fighting flared back up. The U.S. and Saudi Arabia struck Iran-backed armed groups in Iraq.  These were the first U.S. strikes since the pause began last weekend. Iran fired ballistic missiles at American forces in Jordan. Iran also rejected Oman’s joint management proposal for the Strait. The EIA weekly report showed U.S. crude inventories fell 7.2 million barrels, leaving stocks about 7% below the five-year average. Refineries ran at 97.2% of capacity, which is near a record. The Fed held interest rates steady in a range of 3.5% to 3.75%.  Even though there was not a rate increase, Treasuries rocketed to record highs and the dollar gained strength as well. The one cushion nobody expected: China’s crude imports continue to dwindle.  If China was at full-steam imports, things would look considerably worse.

Thursday brought more of the same.  There was fighting and diplomacy running side by side with neither gaining momentum. The U.S. hit dozens of Revolutionary Guard targets inside Iran overnight. Talks between Oman and Iran over Hormuz management were trying to start up again, but Iran was showing no signs of softening. Hormuz shipping picked up slightly.  14 commodity vessels crossed in both directions on Wednesday, up from single digits the week before.  Tankers are starting to get booked at nearly $500,000 a day just to pick up a Gulf cargo for China. If shipping rates increase to more fleets, we will see energy prices go higher based on increased shipping cost.  U.S. GDP growth slowed to a 1.5% annual rate in the second quarter, below expectations and down from 2.1% in the first quarter. Saudi Arabia’s and China’s economy posted contraction at rates not seen since Covid.  The contractions put downward pressure on oil prices even though bullish geopolitical factors are getting worse.

Friday ended the week with oil still elevated near $84. Iran’s Revolutionary Guard stopped two tankers from crossing the strait and four more changed course rather than risk it. The Houthis are now reportedly working with Iraqi armed groups to attack Saudi Arabia from inside Iraq. A drone strike set two vessels on fire at Egypt’s Damietta port, raising concern about the Suez Canal.  The Suez Canal is one of the last major export routes still partially open for Saudi oil. The SPR remains at its lowest level in more than four decades, and Energy Secretary Chris Wright said another major release is not on the table once the current release wraps up.

The Chicago spot market rolled from the August to the September prompt contract this week, which showed a bit of predicted tightness but nothing alarming. Although Phillips 66 refinery had a fire and needed to cut production, the price fallout has been minimal.  Diesel prices jumped 30 cents a gallon on the week as crude oil climbed with renewed fighting across the Gulf. Gasoline held fairly steady after a big move last week and I expect it to level out by end of the weekend.   Diesel is a different story. I do see prices moving higher from here. Hopefully not above $5 a gallon, but that will depend on how next week develops. There are no major refinery maintenance events planned, and diesel production should increase in time for harvest season. But the market is tight and it would not take much to push things higher.

Propane moved in tandem with crude oil this week. With renewed fighting targeting oil export terminals and multiple straits simultaneously, propane has real potential to move higher once demand picks up heading into fall. I continue to recommend topping off your tank and contracting some heating gallons for next year while you have the opportunity. Give our office a call and we will walk you through your options.

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

Back Above $90

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Happy Friday!

Oil briefly crossed $90 a barrel on Thursday for the first time since the spring and then pulled back to close the week near $89. WTI is up nearly 40% in July alone, and this was a week that showed exactly why prices are not coming back down anytime soon. Three major supply routes went under attack simultaneously. The Strait of Hormuz running almost no ships. The Houthis made good on their naval blockade of Saudi Arabia. And Kazakhstan lost half its oil production in a single day to Ukrainian drone strikes. Here is what drove the market this week.

Monday arrived with some diplomatic hope after an entire week of escalation. The U.S. had now carried out nine consecutive nights of strikes on Iran, and the weekend brought sad news for America.  Three American military personnel were confirmed killed in Jordan. Iranian forces struck back at U.S. assets across the Gulf and also hit desalination facilities in Kuwait and Bahrain. The Houthis declared a formal naval blockade of Saudi Arabia on Monday morning, calling it an “eye for an eye” response to Saudi airstrikes on Yemeni territory. Two oil tankers were reported immobilized by the IRGC trying to cross the strait. Iran’s foreign ministry sent the week’s most unexpected message saying negotiations could be pursued based on national interests.  But the market heard it as a possible opening after many days that looked increasingly like a runaway escalation.  Oil prices pulled back on the news.  The pattern of this war has been: talk surfaces, oil drops, talks go nowhere, oil climbs back. We have been through that cycle enough times that caution is warranted. The domestic fuel picture on Monday already told you how little cushion exists if talks fail again. Gasoline crossed back above $4 a gallon. Diesel is running north of $5 for farmers and truck drivers.

Tuesday brought another day of steady fighting and a deteriorating supply picture. A commercial tanker was struck in the Strait while trying to cross and crew members had to abandon ship. U.S. forces bombed targets in southern Iran, Iran struck back at U.S. bases in Bahrain, Kuwait, and Jordan, and the covert ship-to-ship transfer network that had been the Gulf’s main workaround slowed significantly after the latest wave of Iranian attacks. The Houthi naval blockade of Saudi Arabia became a real concern Tuesday, with the focus sharpening on Saudi Arabia’s Red Sea pipeline route to Yanbu.  This was the very bypass the kingdom built specifically because Hormuz is no longer reliable. If that route gets disrupted too, Saudi Arabia loses both of its export pathways at once.  On the macro side, oil could rally to over $120 a barrel in the fourth quarter if the Strait of Hormuz remains disrupted. That is not base case, but it is a possibility based on the pace of the past two weeks.

Wednesday pushed WTI above $87 and the week’s most consequential new development arrived in the Red Sea. Three Saudi crude tankers were loaded with oil bound for China and India when they reversed course and turned back rather than sail past Yemen. The Houthi naval blockade was no longer just a threat. It was real enough to make fully loaded supertankers change course. Asian refiners who had been counting on Saudi crude for August delivery are now scrambling. Meanwhile, the EIA inventory report had a somewhat surprising result.  All U.S. petroleum stocks built for the week. Commercial crude rose 2 million barrels. Gasoline gained 0.8 million. Distillates added 1.4 million. Propane surged 6.3 million barrels to a level now 34% above the five-year average. These builds reflect two things.  One, domestic refineries are running at near-maximum capacity pulling in imports from wherever they can get them.  And second, U.S. production is continuing to creep higher. But the underlying tightness has not disappeared.  Distillate stocks are still 10% below average and gasoline is 7% below normal.

Thursday was the day this week became historic. Oil surged for a fifth straight session, pushing over $90, on news that the Houthis had followed through and struck a Saudi crude tanker near the Bab el-Mandeb strait in the Red Sea. Saudi confirmed at least one ship was hit. Nearly 9 million barrels a day of oil flowed through that strait over the past month. Estimates are that roughly 4 million barrels of that would be extremely difficult to reroute if both Hormuz and Bab el-Mandeb are effectively closed simultaneously. The Strait of Hormuz was running at just three  crossings per day on Thursday, down from 18 per day one week earlier. And then Kazakhstan arrived as an entirely new storyline. Ukrainian drone attacks on the Caspian Pipeline Consortium’s Black Sea export terminal forced Kazakhstan to cut production to just over 400,000 barrels a day, less than half of its normal 925,000 barrel daily average. The CPC pipeline handles almost 2% of global oil supply and is the main artery for reaching European refiners.  On the other side of the world, international buyers flooded back to U.S. crude purchases as Gulf supply dried up again.

Friday brought the pullback of the week. Oil fell more than 3% after briefly touching past $90, partly on profit-taking after the dramatic Thursday move.  Also, Trump’s announcement of new tariffs on 60 trading partners added a layer of possible economic slowdown on top of everything else. When traders think the global economy is about to slow down they sell oil even in a supply crisis. But the weekly gains are very real, and the supply picture that drove prices to $90 has not changed. The Red Sea picture today is more nuanced than a clean blockade. Chinese and Russian-linked tankers have been passing through the Bab el-Mandeb without incident.  The Houthis appear to be letting allied nation ships through unharmed.  Some Saudi crude is still moving. But the economics of using the alternative routes is much more expensive.  India’s refiners are already racing to find alternative supply.  OPEC is set to meet August 2 and is expected to raise its output target, but these quota increases are essentially meaningless right now. OPEC is signaling market recovery but its members physically cannot deliver what they are promising.

The Chicago spot market moved higher with crude oil this week. Diesel jumped over 30 cents a gallon and gasoline followed crude upward while staying more contained thanks to healthy inventories during peak summer demand. I expect retail prices to move higher at the pump, with diesel rising at a steeper rate than gasoline. One thing I am watching closely is that Chicago diesel is still trading at roughly a 50 cent per gallon discount to the NYMEX heating oil contract.  This is an unusually wide gap. With refiners booking extraordinary margins on diesel right now, if Chicago gets at all tight on supply that basis could close fast. Monday is important to watch.  The August prompt contract expires and a rebalancing of that basis could take place around the rollover. Early next week will tell us a lot about the trajectory of diesel prices heading into August.

Propane continued to trade in a very narrow range, and Wednesday’s inventory report showed a massive build.  Many in the market attributed the build to a rebalancing of volumes that had been moving around over the past month, rather than a genuine demand event. Propane summer fundamentals remain in play through end of September, which means you still have time to capture some attractive summer fill pricing before the heating season dynamics start pulling prices higher. That said, in an environment this volatile, I strongly recommend ordering your summer fill sooner rather than later. Next heating season contracts are available.  Please give us a call and we will walk you through your options.

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

No Break In The War

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Happy Friday!

Oil is ending the week around $85 a barrel, up more than 20% from where it started Monday.  This was one of the most alarming weeks of the entire Iran conflict. The brief peace deal that looked promising three weeks ago has completely unraveled. Six straight nights of U.S. airstrikes, Iranian missile attacks on American bases across the Gulf, cruise missile strikes on UAE tankers, Iran’s first direct attack on U.S. facilities in Syria, and now a credible threat to close both the Strait of Hormuz and the Red Sea simultaneously. The market spent all week trying to catch up to events that nobody expected to happen this fast.

Monday started badly. Over the weekend, Iran had targeted U.S. military facilities across the Gulf and declared the Strait of Hormuz closed again. Monday morning brought fresh news that Iran’s Revolutionary Guard had attacked U.S. bases in Kuwait and Bahrain. Ship-tracking data showed only six vessels transited the strait on Sunday.  That was the lowest single-day count in five weeks. Oil surged more than 3% on the open. The Iranian oil that briefly flooded the market during the ceasefire window is now sitting idle at sea, floating in limbo. Iran’s oil is stuck not because of sanctions alone but because the buyers it was counting on found better deals elsewhere. Another interesting report was that the DOE officials announced that the Strategic Petroleum Reserve’s aging infrastructure is being held together with Band-Aids. The 60 Gulf Coast salt caverns were built in 1975, and investment in maintaining them has not kept pace with the demands being placed on them.  At current levels, pumping oil out of the caverns is becoming difficult and there are potential dangers of refilling them at these lower levels.

Tuesday was the heaviest single day of military exchange since the war began. Iran struck two UAE tankers with cruise missiles in the Strait. The UAE has been running record production of over 4 million barrels a day in large part because of this improvised system moving shadow tankers. One Indian crew member was killed and eight others wounded. Iran also fired ballistic missiles at a U.S. air base in Jordan, and the U.S. struck back with five hours of attacks on Iranian targets. Yemen’s Houthi movement fired missiles at Saudi Arabia, adding another thread. Trump reinstated the full U.S. naval blockade of Iranian shipping. Asian refiners responded by actively looking to replace Middle Eastern crude with American oil. Japan, South Korea, and India are all in the market for U.S. barrels. The June Consumer Price Index came in at 3.5% year-over-year, better than the 3.8% economists expected and down sharply from 4.2% in May. But I would not read too much into that. Most of that improvement reflects the drop in gasoline prices during the brief ceasefire window in June.

Wednesday pushed WTI above $80 a barrel for the first time in weeks. The U.S. launched another wave of strikes. Iran struck back at U.S. bases in Bahrain, Kuwait, and Jordan.  Iran then threatened directing its Houthi allies in Yemen to close the Bab el-Mandeb narrow gateway at the southern end of the Red Sea. The Strait of Hormuz carries roughly a fifth of the world’s oil. The Bab el-Mandeb is how that oil gets to Europe and the Atlantic. Threatening both points simultaneously is not something the market has ever had to price in before. The EIA weekly report showed crude stocks fell 1.7 million barrels to 409 million barrels, which is still 6% below the five-year average. Gasoline dropped another 1.5 million barrels and is 8% below average. Diesel stocks rose 4.6 million barrels, which is good news. An interesting data point out of China noted that crude oil imports fell 41% in June compared to a year ago.  And China drew down its strategic reserves at a pace 85% faster than in May just to keep refineries running. When that restocking demand eventually arrives, it will add significant pressure to an already stressed global market.

Thursday brought oil to its highest level in about a month, holding near $83 after surging roughly 12% over the prior three sessions. The fifth consecutive night of U.S. airstrikes on Iran kept pressure on prices. Only seven ships crossed the Strait of Hormuz on Wednesday, down from thirteen the prior day. Iran declared Hormuz an inviolable “red line” and warned that if Trump carries out his threat to bomb Iranian power plants and bridges, it will retaliate against all energy infrastructure across the Gulf.  Houthi forces in Yemen have already completed preparations to close the Bab el-Mandeb, deploying missiles and drones in Yemen. Saudi Arabia has been rerouting roughly 7% of global energy supplies through its East-West pipeline to the Red Sea port since the Hormuz closure began. If that bypass gets cut simultaneously, the supply shock would be historic. A drone also struck a tanker at Iraq’s Basra export terminal on Thursday, briefly forcing a suspension of all crude loadings.  The U.S. reportedly struck a supertanker near Iran’s main export terminal in the Persian Gulf. Both sides are now targeting energy infrastructure directly, not just military assets. I do not expect prices to stay calm if Iran follows through on either the power plant threat or the Red Sea order. I am watching both very closely.

Friday confirmed the direction of the week. Oil rose more than 2% as the U.S. and Iran traded strikes for a sixth straight night. Only three commercial vessels crossed the Strait on Thursday.  This was the fewest single-day crossings since May.  And for the second straight day not a single large crude carrier or fuel tanker made it through. Some crews are simply refusing to make the trip regardless of pay. Iran expanded the conflict overnight to Syria.  This was the first direct attack on U.S. facilities there.  And they struck a Kuwaiti power generation and water desalination station. That signals Iran is willing to threaten the stability of its neighbors beyond shipping. On the domestic supply side, U.S. refiner margins hit a fresh record high for the third straight session. Demand for American refined products from overseas buyers has pushed U.S. fuel exports to record levels. That is welcome for producers, but it means domestic fuel stockpiles are being drawn down to supply the world, which pushes gasoline and diesel prices higher for everyone here at home. Midwest farmers are feeling this right now during the height of summer operations.

The Chicago spot market moved sharply higher with crude prices this week. Gasoline jumped over 20 cents a gallon and diesel over 40 cents. I expect prices at the pump to move meaningfully higher heading into next week. One thing I am watching closely is that Chicago diesel is currently trading about 60 cents a gallon cheaper than NYMEX heating oil, which is an unusually wide gap. With refiners running highest possible capacity on diesel, if Chicago gets tight on supply at all, that basis could explode another 30 to 40 cents in a hurry. The Group spot market is also showing weak diesel basis right now, which tells me supplies are currently healthy.  But it would not take much of a disruption to change the situation quickly. Gasoline basis is a little soft but nothing that has me worried at this point.

Propane prices appear to have found a floor and have been stable this week. Given everything going on, I only see potential upside for propane heading into the winter heating season. I do not think the upside is as dramatic as it has been in some past years, but that can change quickly during periods of high demand when logistics get strained. Even with fundamentals looking somewhat comfortable right now, I still recommend locking in some heating gallons for next season while you can. And if you are able to top off your tank this summer, it will lower your cost average for the year.

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

No One Knows

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This was a week that started with oil looking like it was finally settling down and ended with analysts questioning whether the Strait of Hormuz will ever be reliably open again. A lot happened this week!

Monday opened quietly. WTI slipped to around $68/barrel, down about half a percent, after OPEC and its allies agreed over the weekend to pump another 188,000 barrels a day starting in August. On the surface that sounded like a lot of new supply hitting an already recovering market, but the reality was more nuanced. Those barrels were not new production.  They were countries slowly climbing back toward levels they had pledged before the war. Gulf exports had already jumped more than 3 million barrels a day in June compared to May, topping 10 million barrels a day for the first time since the conflict began. The last tankers trapped inside the Strait during the war were finally starting to make it out. Chinese refiners were buying discounted Middle Eastern crude as fast as it arrived. Monday felt like crude oil was finally finding balance.

Tuesday was the first warning of the situation changing. Iran’s Revolutionary Guard fired missiles at ships in the Strait of Hormuz, striking a Saudi crude oil tanker and another vessel. Iran’s foreign minister said peace talks were off the table as long as Trump kept threatening strikes. The fragile ceasefire looked like it was on its last leg.  In addition, Saudi Arabia announced it was studying an expansion of its East-West crude pipeline to the Red Sea.  The project would let it move up to 7 million barrels a day to export markets without ever crossing the Strait. Clearly Gulf countries are starting to plan for permanent Strait issues.

Wednesday was the pivotal day. The chain of events moved fast.  Iran struck commercial vessels, the U.S. launched airstrikes on Iran’, Iran retaliated against U.S. military sites in Bahrain and Kuwait, and then Trump declared at the NATO summit that the interim peace deal was over.  WTI jumped more than 5% to $74.44 in a single session. Tankers turned back from the Strait rather than risk the crossing. Washington reinstated full sanctions on Iranian oil starting July 17.  The EIA’s weekly data that afternoon added more color to the picture. Crude inventories actually built by 3 million barrels.  This was the first build since mid-April.  But distillate stocks dropped 5 million barrels, landing 12% below their five-year average.

On Thursday traders seemed to take a breath and reassess the situation. Shipping through Hormuz had nearly stopped. Only about 20 commodity carriers crossed in either direction on Wednesday, the lowest daily count since before the June deal.  And Thursday even that number had decreased. Country representatives were urging shipping companies to pause movement. The concern is not just this week’s fighting. As long as the U.S. and Iran are fighting for control of the Strait, every ceasefire is just a pause between confrontations.

The diesel story also came into sharper focus Thursday. Russia announced a ban on diesel exports through July 31st as a direct result of Ukraine’s drone campaign against Russian refineries. Moscow’s domestic fuel situation had deteriorated enough that it needed to keep supply at home. Combined with Gulf refineries still running at less than half of prewar capacity, the global diesel market was left without its two biggest emergency supplies at the same moment. The crack spread, the gap between what crude costs and what a barrel of gasoline or diesel sells for, had climbed to roughly $57 a barrel, near its highest level since 2022. Crude prices still have come down a lot from their war peaks. But diesel prices were not following due to tight world supplies.

Friday brought a slight pullback, but oil was still on track to finish the week well above where it started Monday. Trump said he did not think the war would restart. The U.S. and Iran were reportedly still talking through back channels despite the fighting. The IEA confirmed what the market had been feeling all week.  Crude is becoming well supplied, but refined products remain exceptionally tight. Gulf refineries are still offline, and product exports from the region are running below half of prewar levels. That gap will not close until those facilities restart.  And that takes months, not days, regardless of what happens with Iran. On a more positive note, governments around the world are lining up to rebuild the emergency reserves they drew down during the war. Analysts estimate that strategic petroleum reserve purchases could add up to roughly 664,000 barrels a day of demand through the middle of 2027.  This demand increase will help absorb some of the supply OPEC is putting back into the market and give prices a floor. I do not expect oil to collapse, even if the Iran conflict ends.

The Chicago market tracked crude oil closely through the week’s volatility. Prices climbed sharply on Wednesday alongside WTI, then retreated somewhat on Thursday and Friday. Even with those pullbacks, I expect to see retail prices on gasoline and especially diesel move higher in the days ahead. Crack spreads here in the U.S. are at their highest level since 2022, which means refiners are being rewarded handsomely for every gallon of gasoline and diesel they produce. The export arbitrage right now is extraordinary, and if domestic refineries are running at the limit to serve overseas markets, that will eventually show up as tighter supply closer to home. I am watching the Gulf situation closely this weekend.

Propane prices stabilized this week after falling the week before. Summer fills are in full swing, and we are currently at the lowest price of the year so far. I continue to strongly recommend topping off your tank this month or in August and locking in some heating gallons for next winter now. The geopolitical situation can shift quickly, and when it does, prices move fast. Right now you have an excellent opportunity to secure supply at favorable levels before the fall heating season.

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 4th Of July!

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Happy Friday and 4th of July weekend!

Oil finished the week around $69 a barrel and this was a week where the price kept drifting lower even as the news got more complicated. The Strait is still open and tankers are still moving, but the talks between the US and Iran are going nowhere fast, and both sides are starting to look pretty far apart on the most important questions. Here is what drove the market this week.

Monday started with oil bouncing back to about $70 a barrel after a rough weekend. Over the prior few days, Iran struck an oil tanker inside the Strait, the US fired back with fresh airstrikes, and several big ships that were planning to cross turned around and went home. But Monday brought an agreement from both sides to stop the reciprocal strikes and get back to the table.  And that was enough to push prices back up about 1%. The ceasefire is still fragile, but it held. Saudi Aramco kept loading oil after the strikes, so some optimism remained in the market. A fourth supertanker was spotted loading there on Monday, adding to the three that moved the week before.  Venezuela had a rough weekend too.  A power outage from the earthquakes knocked out its biggest refinery. The good news is it came back online, and the country confirmed its oil production and exports were not affected.

Tuesday brought a diplomatic disappointment. US envoys flew to Qatar to restart talks with Iran. Iran didn’t show up. A Qatari official confirmed no high-level meeting happened, and mediators were basically just trying to keep things from getting worse. This matters because the 60-day window for turning the signed agreement into a permanent deal is ticking.  Oil barely moved on Tuesday, holding near $71, which tells you the market had largely expected this. The bigger picture on Tuesday was that banks were cutting their oil price outlooks for the rest of the year for the first time since the war started.  Gulf oil is coming back to market faster than the peace negotiations are moving forward, and analysts now expect there to be more oil than the world needs next year. Iraq started offering massive discounts to any buyer willing to send a tanker through the Strait.  When a country is pretty much selling oil at cost, that tells you the supply picture has shifted from a few months ago.

Wednesday was quiet on the diplomatic front but busy on the data side. The government’s weekly oil report showed US crude stocks fell another 3.8 million barrels, leaving inventories about 7% below where they normally are this time of year. Gasoline also dropped 2.3 million barrels and is 7% below seasonal average. On the flip side, diesel stocks rose 2.5 million barrels, which continues to be a surprise. Refineries were running at 96.6% of capacity which is essentially full speed. There was an interesting data point discussed in the report.  Americans are actually using less gasoline and diesel than they did a year ago. High prices from this spring left seem to have finally hit pocket books and people are cutting back. US crude oil production hit a record high in April of almost 14 million barrels a day.  The extra supply is going to add to the global surplus that analysts are worried about in 2027. Russia’s fuel problems got even worse on Wednesday.  Russia is now buying gasoline from India by ship. Ukraine has shut down so many Russian refineries with drone strikes that Russia is no longer able to produce enough finished product to meet the country’s demand.

On Thursday, oil prices fell again, dropping close to 2%, as the US-Iran talks in Doha wrapped up with what the US called “positive progress” but news outlets in Doha countered with publishing no actual breakthroughs. The 60-day clock keeps running with no deal on the horizon. Iran has somewhere between 58-68 million barrels sitting on tankers with no clear buyers. More than 90% of those ships show no destination. Iran has until mid-August under the US sanctions waiver to find buyers for that oil. Ukraine struck another Russian oil refinery Thursday adding to the continued growing list of Russian refineries driven offline.

Chicago spot prices did not move that much this week, and the market moved pretty much in line with crude oil. Diesel made some big up-and-down swings during the week but ended up right about where it started. Gasoline was flat all week. I expect to see prices at the pump stay about the same heading through the holiday weekend.

The big news on propane is that prices dropped heading into July. Demand has been weak, production has been strong, and even though exports are running at record levels, inventories remain at high levels. Combined with lower crude prices, propane prices moved down to its lowest price of the year. This is the best time we have seen all summer to fill your tank. I still strongly recommend topping off now and locking in some gallons for next heating season while prices are this low.

As always, if you have any questions please feel free to give us a call. Have a great weekend and Happy Fourth of July!

Best regards,
Jon Crawford

Sources: Bloomberg, Reuters, Wall Street Journal

Hanging On By A Thread, Or Is This For Real?

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Happy Friday!

WTI crude oil ended the week around $69 a barrel.  The current price is below where prices were before the Iran war began.  And this was the week the market made clear it believes the supply is actually coming back. From Monday’s peace talk optimism to Thursday’s record flows through the Strait, prices fell nearly $7 in five trading sessions. And yet, by Friday, a vessel attack near Oman, Iran turning back tankers it deemed unauthorized, a revealing of unreported damage to the U.S. naval base in Bahrain reminded everyone that $69 is a trading level, not necessarily a reality.

The week opened Monday with encouraging signals out of Switzerland. The first formal round of U.S.-Iran peace talks wrapped up with both sides calling it “major progress,” and Vice President Vance publicly confirmed the Strait of Hormuz is open for business. Iran’s Foreign Minister confirmed that Iran had secured waivers allowing oil exports to begin, frozen assets would be released, and that the reconstruction fund has been formally launched. Oil fell on the news.  Physical proof supported the announcements on Monday. More than 25 million barrels of Iranian crude passed through the blockade, and the US reported that 55 ships crossed the Strait on Saturday carrying roughly 17 million barrels. Even though the day before Iran’s Revolutionary Guard briefly declared the Strait closed again, citing Israeli strikes in Lebanon, Iran kept the oil flowing.

Tuesday brought the week’s biggest policy shift. The U.S. officially waived Iran’s oil sanctions for the first time in nearly a decade, authorizing the sale of Iranian crude through August 21. It is a dramatic reversal after years of maximum pressure designed specifically to keep Iranian barrels off global markets. Although selling that oil is harder than it sounds. About 68 million barrels of Iranian crude are sitting on the water and most are available for purchase.  But the market is full. EU and UK restrictions remain in place even with the U.S. waiver.  Some ports may refuse Iran’s shadow tanker fleet entirely. And buyers are wary that Trump could reverse the waiver at any moment, leaving them committed to a cargo that becomes sanctioned again mid-deal. China, Iran’s traditional anchor buyer, is not rushing to purchase.  China’s domestic demand is flatlining and private refiners there are running at a nine-year low utilization rate.

Wednesday was when prices really broke. WTI fell to about $72 a barrel as tanker traffic through the Strait kept building and Middle Eastern supply rushed back onto a market that had been short of barrels for months. Physical crude cargoes started selling at discounts in multiple markets, a clear sign that supply was outpacing near-term demand. The war premium in oil had not just unwound, it started to reverse. But a serious crack appeared on Wednesday. Trump stated publicly that Iran had agreed to nuclear inspections “into infinity” as part of peace negotiations. Iran’s side flatly denied ever making that concession. That is not a small disagreement over wording.  Nuclear inspections are the core issue the 60-day ceasefire window was supposed to resolve. On the domestic supply front, the weekly EIA inventory report confirmed crude stocks fell another 6.1 million barrels last week and are still about 7% below the five-year average.  The massive draw was even more defined because gasoline stocks rose 2.1 million barrels and distillates climbed 3.1 million barrels.

Thursday brought WTI below $70 a barrel for the first time, closing at $69 and fully erasing all the price gains from the four-month Iran war. Th U.S. confirmed at least 20 million barrels of oil exited the Strait in the previous 24 hours.  But Iran made clear it intends to keep managing traffic on its own terms.  Whether the Strait truly returns to an open or remains under Iran’s effective management is one of the most important unresolved questions hanging over the long-term stability of global oil supply. Trump addressed Iran’s desire for tolling by stating he will not accept any peace deal that includes tolls on ships transiting Hormuz.  Iraq complicated the OPEC picture Thursday as well, signaling it is considering leaving the organization if it does not get a significant quota increase. Iraq is OPEC’s second-largest producer and one of its five founding members.  Losing Iraq two months after losing the UAE would be a serious blow to OPEC’s ability to manage global supply. China added to the bearish pressure by raising its refined fuel export allowance for state refiners in July with no restrictions on destination countries.

Friday closed the week with WTI near $69, but not without drama. Saudi Aramco resumed oil loading after nearly a four-month halt.  There were two very large crude carriers actively taking on crude, with a third waiting nearby. But a cargo vessel reported being struck by Iran near Oman on Thursday.  The UN’s Maritime Organization responded by pausing its escort operation through the Strait. Iran doubled down on the attack. Iran reasserted its right to control all shipping through the waterway, warned Gulf states against siding with the U.S., and the Revolutionary Guard turned back three tankers attempting what it called unauthorized passages. Iran made its position explicit: ships using routes not designated by Tehran do so at their own legal and financial risk. Iran is reacting to that united front between Gulf Nations and the US, and Friday’s events make clear the standoff over who actually controls the Strait is far from resolved.

Chicago spot market was very wonky this week as the July prompt spot contract expired and moved to August.  There was a frenzy of gasoline trades placed at the expiration causing pricing frustration.  Gasoline prices whipsawed in opposite directions of predicated price indicators.  Hopefully by the start of next week we will see some balance in the gasoline market.  For now, retail prices should still stay in the current range.  Diesel prices did not experience the same volatility as gasoline at month end.  Diesel prices continue to drop, and I expect to see retail prices continue their slow and steady decline.  Also, a massive refinery in Pennsylvania went down with a fire and traders are waiting patiently to see if some Chicago supply might be moved east.  Time will tell.

Propane spot prices surprisingly dropped this week after months of stability.  Retail prices dropped but nothing majorly significant compared to the last two months.  I still believe that filling up your tank now is a good buy and I recommend locking in some heating gallons for next season.

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

Lots To Discuss Even Though Markets Were Closed Friday

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Happy Friday!

Oil is ending the week right around $77 a barrel.  This was the week the world actually saw a peace deal get signed, watched the first supertankers move through the Strait of Hormuz in months, and celebrated gasoline dropping below $4 a gallon for the first time since March. And then Friday morning brought a fresh complication that reminded everyone how fragile this whole thing still is.

The week started Monday with oil already down sharply after Trump announced over the weekend that the U.S. and Iran had agreed to an interim peace deal. Pakistan’s prime minister confirmed that both sides would sign a formal memorandum of understanding in Switzerland on Friday. The terms were significant: the Strait of Hormuz would reopen toll-free, the U.S. naval blockade of Iranian ports would end, and Iran would get the right to resume oil exports immediately. The E4 nations said they were prepared to lift sanctions on Iran in exchange for steps toward nuclear disarmament. Iran agreed in principle to not produce or acquire nuclear weapons and to dramatically reduce its enriched uranium stockpile.

The market priced all of this in with cautious optimism rather than outright celebration, and I think that was the right call. Oil traders have watched Trump announce imminent deals on the Strait many times since February only to see fighting resume. The full text of the agreement still had not been released Monday, and major shippers said they would not restart Hormuz transit until the waterway was confirmed safe, including mine clearance.

What most people did not know until Tuesday was that the U.S. military had been quietly running a covert ship-to-ship oil transfer operation since early May to keep Gulf energy moving during the war. At least 92 ships were involved with handoff points near Fujairah in the UAE and Oman’s port of Sohar. Here is what I find remarkable about that.  This is the exact same technique Iran has used for years to evade U.S. sanctions. Washington borrowed Iran’s own playbook to keep oil flowing during the war with Iran. Oil fell further on Tuesday, extending the two-day slide.

Wednesday brought more detail on the deal itself. Further details explained that Iran would be allowed to resume oil sales immediately upon signing, and the agreement included access to a $300 billion fund to help rebuild Iran’s economy.  The IEA also weighed in Wednesday with its first look ahead at 2027.  They believe global oil supply is on track to surge roughly 8 million barrels a day next year while demand grows by only 2 million. On the domestic supply side, the weekly inventory report showed crude stocks fell another 8.3 million barrels, leaving U.S. inventories about 6% below the five-year average. Gasoline is also 6% below normal and distillates are 13% below.  These inventory deficits are occurring all while refineries are running at 96.7% utilization.

Thursday was the big day of the week. Trump and Iran’s President both signed the memorandum of understanding.  Within hours of signing, three Saudi-flagged supertankers carrying a combined 6 million barrels of crude crossed the Strait. Ship-tracking data showed at least 12 million barrels of crude in motion out of the Persian Gulf by midday. Shippers are still moving carefully.  In addition, Ukraine also struck another Moscow main oil refinery on Thursday in a major drone attack, the second strike on the facility that week.  The strikes were a reminder that Russian energy infrastructure remains under continued pressure.

And then Friday arrived. Switzerland announced that the formal U.S.-Iran peace talks scheduled for today in Geneva will not take place.  The postponement does not cancel the signed agreement.  On top of that, Iran’s Revolutionary Guard Corps has quietly set up new covert cells in Iraq with the aim of carrying out attacks on Gulf countries that host American forces.  That kind of activity is exactly the type of thing that could unravel this deal if it escalates.

The dollar had its biggest two-day rally in three months.  The Fed held rates steady Wednesday under new chairman Kevin Warsh, as expected. But Warsh made clear the Fed will not tolerate a resurgence of inflation, and half of the rate-setting committee is now projecting a rate hike by year-end. Two-year Treasury yields jumped 13 basis points in a single day.  This was the biggest single-day move in more than a year.  These economic decisions affect the strength of the dollar which puts pressure on oil prices.  Regardless, national average for gasoline at the pump dipped below $4 a gallon for the first time since March.

One of the more lasting takeaways from this week is how permanently the Hormuz closure has changed the way the oil world thinks about risk. Japan sourced roughly 90% of its crude from the Persian Gulf before the war. It now maintains a steady base of U.S. oil purchases every month and is not going back. Saudi Arabia and the UAE are accelerating pipeline expansion plans to bypass the strait entirely. That infrastructure buildout will reshape the region’s energy geography for decades.  And it means the next disruption of the Strait will hit a market that has already started rewiring itself, therefore, taking some leverage out of the hands of Iran.

Chicago had a quiet week, and after the past two weeks of volatility, I will take it. The spot market traded in lock-step with crude oil, inventories are healthy, and basis movements were stable. Diesel prices at the pump should continue to drift lower as inventories replenish with cheaper cost product. Gasoline was mostly stable and I do not expect much change there heading into next week.

Propane continues to trade in a very narrow range and I do not expect to see any meaningful price drop unless crude oil prices collapse further.  And given everything that is still unresolved, I would not count on that. The situation looks a bit rosy right now, but we are definitely not out of the woods yet. I still strongly recommend topping off your tank this summer and locking in some heating gallons for next winter before any surprises push prices higher. We have prepay, budget, and price-lock options available.  Give us a call and we will get your summer fill scheduled and walk you through your contract choices.

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