Happy Friday!
Crude oil prices are set to finish the week lower, falling back below $60 per barrel after a short-lived rally earlier in the week. The move lower came after President Trump announced that violence in Iran is easing and that U.S. intervention is not necessary at this time. That statement removed much of the geopolitical risk premium that had supported crude for several days and marked the first daily decline in six sessions. Even with occasional rebounds, the broader trend remains fluid as markets continue to focus on oversupply heading into 2026.
On Friday, Bakken producer Continental Resources announced it is shutting in production due to low prices. While this is notable for U.S. shale, it has done little to change the broader narrative. Global supply growth, particularly from OPEC and potential increases from Venezuela, continues to outweigh any near-term U.S. production cuts. The White House has made it clear that lower fuel prices remain a priority, even if that comes at the expense of domestic shale producers. Chevron is expected to receive an expanded license to export crude from Venezuela, a move that will benefit Gulf Coast refiners but add pressure to U.S. shale basins, especially the Permian. Venezuelan crude will likely displace some barrels that would otherwise head to China, but with the world already awash in oil and the possibility of progress toward ending the war in Ukraine, China has plenty of alternative supply options. Canada also appears to be gaining ground in trade discussions with China, including potential crude shipments from Canada’s West Coast export terminal. If those barrels flow, they could further reduce U.S. access to cheap Canadian crude and add competition for Venezuelan supply.
Geopolitically, Ukraine confirmed it struck two Russian oil tankers earlier in the week, contributing to the midweek rally. Russia responded with its largest attack on Ukraine so far this year, continuing to damage Ukraine’s energy infrastructure and increasing pressure for a negotiated settlement. However, markets remain convinced that even if sanctions remain in place, global oversupply will dominate once any peace framework emerges. India has begun shifting more crude purchases back toward OPEC producers and away from Russia, which could force Russia to send additional barrels to China. Despite high storage levels, China imported more crude in December than a year ago, likely taking advantage of low prices. In addition, January imports are expected to slow as Chinese storage remains near capacity and discounted Iranian and Russian barrels remain readily available. Trump also announced 25 percent tariffs on anyone doing business with Iran, briefly pushing crude higher on concerns about Iranian exports. However, the rally faded as traders refocused on surplus supply and the broader implications for U.S.–China trade, given China’s ties to Iran.
On the economic front, the U.S. revised GDP higher for November, and some forecasts now point toward growth exceeding 5 percent in 2026. While stronger growth would support oil demand, most believe it will still not be enough to absorb the supply surplus expected in the coming year. The latest EIA report showed builds across crude, gasoline, and distillate inventories, reinforcing the view that U.S. supply remains ample. Trump also stated he does not plan to remove Fed Chair Powell, which helped stabilize the dollar. A firmer dollar continues to weigh on crude prices. Earlier in the week, renewed questions around Fed independence briefly weakened the dollar and gave oil a temporary lift, but that support faded quickly. Major banks continue to trade the same direction: surplus supply and lower prices. Many are calling for WTI to fall below $55 per barrel, with some suggesting $50 as a potential floor. I agree that prices may stabilize in the high $50s for now, but a true recovery likely won’t materialize until 2027, when potential sustained production cuts and economic growth begin to meaningfully rebalance the market. If global economies weaken further, that recovery could be delayed.
The Chicago spot market moved higher this week in tandem with crude’s geopolitical bounce. Even with crude price settling back below $60, finished products in Chicago are ending the week higher than last week. Diesel prices surged sharply before correcting on Thursday, but they remain elevated compared to last week, and I expect higher diesel prices at the pump. Gasoline prices also jumped and should cause higher prices at the pump. Until geopolitical risk fully clears the market, I expect prices to hold at current rates.
Propane prices remain relatively stable, but shipping logistics continue to be a major challenge. An official report confirmed that the pipeline running from Kansas to Janesville will operate at only 80 percent capacity throughout the winter for safety reasons from a leak back at Thanksgiving. That 20 percent loss has shifted more demand onto rail, which is already strained after Edmonton declared force majeure on contracted railcars due to extreme cold. Trucking companies are now traveling out of state to supplement supply from Janesville, which serves much of Wisconsin. Freight rates for propane have nearly doubled, and with colder weather arriving, I expect higher retail propane prices. Unfortunately, this situation is unlikely to improve for at least the next one to two weeks, and if cold snaps persist, tight conditions could last into March.
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, Wall Street Journal, Reuters
