Happy Friday!
This was a week that had everything: drone strikes, a near-restart of the war in Iran, a record SPR draw, cautiously optimistic peace signals, and a Chicago market that continued to swing in record numbers. WTI is looking to close below $100/barrel for a weekly loss.
The week started with a surprise on Monday when drones struck a UAE nuclear facility over the weekend and Saudi Arabia intercepted three more headed its way. Oil climbed to its highest level in two weeks as Trump warned Iran the that the clock is ticking. Pakistan shared a revised Iranian peace proposal that Trump immediately dismissed. The IEA delivered a very strong message, saying oil inventories worldwide are declining so rapidly that only a few weeks of supply buffers remain. Iraq confirmed some of the report saying that the country exported only 10 million barrels through the Strait in April compared to about 93 million in a normal month.
Tuesday brought the week’s biggest whipsaw. Trump posted overnight that he had called off a strike scheduled on Iran for that morning, saying Gulf allies asked for more time. WTI price took off. The pause was clearly temporary. Trump reiterated that the US is ready to resume attacks if a deal isn’t reached. Both sides released their positions again. Iran wants an end to all attacks, a full US military withdrawal, and war reparations. The US wants Hormuz reopened, the nuclear program stopped, and proxy attacks halted, with no reparations and no withdrawal. Three months in, and still neither side is bending. And the US reversed course and extended the Russian oil sanctions waiver for another 30 days for poor countries that literally cannot access Gulf oil right now. The waiver is meant to try and help nurse the world oil supply condition while a deal with Iran hopefully gets done.
Wednesday brought more of the same. Trump posted the war would end very quickly. WTI slipped more than 2 percent on the news. Although three super tankers made it through the Straight, but there is no immediate relief in the future. Iran established a designated transit route running about 10 vessels a day — a fraction of normal, but better than near zero. Saudi Arabia’s data showed crude exports hit a record low going back to 2002, and the IEA calculated that supply losses caused a 246 million barrel drawdown in global inventories in March and April combined. Back at home on the supply front, EIA report firmed up any major price drop. Crude inventories fell 9.1 million barrels, the single largest weekly draw of this entire crisis, with gasoline dropping another 5.8 million on top of that.
On Thursday, oil climbed more than 1 percent as Pakistan pushed hard to get both sides back to the table, Iran said it was reviewing Washington’s latest responses, and Trump said he was willing to wait a few days for the right answers. But then Iran’s Supreme Leader has ordered that the country’s near-weapons-grade uranium stockpile cannot be sent abroad. This is a deal breaker. And even if a deal were signed tomorrow, leaders have said full Hormuz flows won’t return until at least early 2027. The IEA continues to call this the largest energy crisis in history. Pump prices are now about 45 percent higher than they were in late February. AAA expects a record 39 million Americans to hit the road this Memorial Day weekend, but a GasBuddy survey found 35% say rising costs are already causing them to take fewer road trips.
Today, the US and a senior Iranian source said that gaps have narrowed, but the two sides remain stuck on Iran’s uranium stockpile and long-term control of the strait. As the UAE continues to beat the drum that once the Straight opens, they will pump at full speed, they made another surprising announcement this week. They are close to completing an alternative pipeline to export crude oil outside of the Straight. The pipeline will help secure UAE access to the world market regardless of what happens in Iran. One piece of good news was that forecasters are calling for a below-normal hurricane season, which takes some pressure off Gulf Coast production and refinery infrastructure during the busy summer months.
In Chicago, the spot market continued to be a volatile nightmare this week. Even with crude losing almost ten dollars a barrel, Chicago did not follow. Diesel differentials swung over 80 cents a gallon again. Refiners are keeping their cards close to the chest as month-end approaches, which makes retail pricing very difficult. I am hoping we are out of the woods in early June. Chicago basis still has up to 50 more cents to give back versus the Group Spot market, and I do expect lower diesel prices next week if crude and NYMEX hold steady. Gasoline is a different story. It continues to run much weaker than diesel, and I expect flat or lower gasoline prices for the holiday weekend.
Propane is not following crude lower. Inventories are staying essentially flat during what should be the normal seasonal build period. I continue to recommend filling your tank over the summer. I do not expect a blowout price drop this season. And next season’s heating contracts should be out next week.
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
