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
