Happy Friday!
This was one of the most volatile weeks of the entire three-month Hormuz crisis. WTI crude touched $100 a barrel early in the week, collapsed to $90 on deal optimism midweek, snapped back above $90 when airstrikes resumed, and is ending the week right back near $90 as a potential ceasefire extension waits for President Trump’s signature. Oil moved as much as six dollars in a single session on multiple days. The one certainty heading into the weekend is that nothing is solid until a deal is signed and the first tanker moves freely through the Strait.
The week started with cautious optimism coming out of the Memorial Day weekend. Iran’s foreign ministry said agreements had been reached on many topics in negotiations. That hope collapsed quickly on Tuesday when the US launched new strikes on Iran. Iran called the strikes a violation of the ceasefire that had been in place. Then on Wednesday, reports began noting progress toward ending the crisis, with an increasing number of ships starting to move through the Straight. Prices dropped sharply on renewed optimism. Thursday brought another reversal. Iran’s Revolutionary Guard struck a US airbase in retaliation for another US strike and prices jumped again. By Friday morning, the two sides appear to have pulled back from the brink of military escalation. Treasury Secretary Bessent confirmed the US and Iran are within reach of a ceasefire extension agreement, but said Trump has not yet approved it. The statement from Bessent sent oil down nearly 2%. If Trump signs, analysts believe prices will fall sharply next week. If he doesn’t sign, prices will rebound higher. I don’t believe that prices will collapse if Trump signs the deal. I believe that the signing is already priced into the current trade. However, if ships start flowing at full capacity with 100% freedom, I do believe prices will fall further.
This week marks exactly three months since the crisis began. A handful of tankers did exit the strait this week — two supertankers and an LNG vessel moved through, appearing to head for India and China. Any movement is being watched closely. Jet fuel trade continues to be completely disrupted globally. Some smaller producers like Argentina, Brunei, and Gabon have quietly picked up market share that Gulf producers can no longer fill. Europe is increasingly worried that the problem is shifting from price to physical availability, specifically calling out jet fuel as the most vulnerable product.
On the domestic supply front, the weekly inventory data was clear. Commercial crude stockpiles fell another 3.3 million barrels, putting them about 2% below the five-year seasonal average. Gasoline is 6% below average. Diesel is 11% below average. These numbers are important when heading into summer. Refineries are running hard at 94.5% of capacity, and crude imports are running 7% below year-ago levels as the effects of the Strait closure continue to affect the global supply chain. We have enough supply, but the world market is bidding a higher price, hence extra supply leaving the US.
Meanwhile, the Wall Street Journal reported this morning that Americans are falling behind on their $1.25 trillion credit card bill. Middle-class families are starting to slip into what is called “survival debt”. This is borrowing just to cover basic expenses. High gas prices are a direct contributor, and the longer the Strait stays closed the worse debt piles on. And another interesting economic nugget this week. About one million potential new car buyers have also exited the market entirely due to high fuel costs, rising interest rates, and sticky inflation. Cracks in the greater US economy are starting to take shape as we roll into summer.
Finally, some genuinely good news on the Chicago Spot Market front! Chicago finally sold off as refineries came back online this week. Diesel took a dramatic drop and gasoline fell in tandem with crude oil. We are going into June with much better pricing than we have seen in weeks. I expect lower prices at the pump next week for both gasoline and diesel, and as long as crude price holds steady, I expect those lower prices to hold.
Propane is a different story. Prices have not budged at all, even with crude oil dropping sharply this week. The EIA reported a surprise inventory draw as record exports continue. Inventories are skipping along near-record levels, but they are declining during the time of year when they should be building for winter. I do not expect to see propane prices move much lower for summer fills. Also, next season’s heating contract numbers have been released. Please call the office to lock-in your pricing 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 CrawfordSources: Bloomberg, Reuters, Wall Street Journal
