Happy Friday!
Wow, it’s a cold one out there this week and next week! I hope everyone stays safe and warm. It’s been awhile since we’ve had this amount of cold weather for a couple of weeks. Thankfully, February is looking to be more normal temperatures. This past week was a head spin of data. As I began to write, for the first time in a while I didn’t know where to start. LOL! On to the update!
Geopolitical developments were active on several fronts. Crude oil prices rebounded late in the week, moving back above $60 per barrel after President Trump renewed the risk of potential strikes on Iran. The U.S. continues to build a military presence in the region, and that escalation briefly restored a geopolitical premium to the market. Revised estimates now suggest protest-related deaths in Iran are significantly higher than initially reported, keeping the situation fluid. Even so, the rally has been uneven, as traders continue to weigh headline risk against a still-heavy global supply outlook. France intercepted a Russian shadow-fleet tanker in the Mediterranean on Thursday, marking a further escalation in Europe’s enforcement of sanctions on Russian oil. While India continues to buy Russian crude despite sanctions on major Russian producers, much of that flow is now moving through smaller Indian refiners without consequence, allowing Russian barrels to remain legally active in the market. In addition, shipping routes in the Red Sea are again under pressure. Attacks in the Red Sea and Suez Canal region have forced tankers to reroute around Africa, increasing transit times and costs. While most affected cargoes are Russian, the added expense and delays are pressuring Russia’s ability to reliably move oil to China, which remains critical for sustaining war-time revenues. Russia is still reporting record diesel exports from Primorsk as winter demand declines domestically, with buyers like Brazil stepping in.
On the macro and trade front, Europe temporarily called off trade talks with the U.S. amid ongoing discussions around Greenland, increasing volatility across broader markets. Britain and China reached an agreement for China to build its largest embassy in London, signaling Britain’s intent to deepen trade ties with China as it looks to replace exports lost to the U.S. A broader trade war with Europe would likely hurt U.S. exports and could push Europe closer to China, which still has excess manufacturing capacity. Midweek comments from President Trump at Davos added volatility. He reversed course on tariffs against Europe, stated that he hopes there will be no strikes on Iran but emphasized the U.S. remains prepared, and reiterated that he believes a deal to end the war in Ukraine is close. Those comments initially pressured crude prices as geopolitical risk appeared to ease, but sentiment shifted again as military assets were redeployed into the Middle East and unrest in Iran intensified. Russia and U.S. delegates also met on Friday to discuss a potential peace framework for Ukraine, though Russia made it clear that without territorial concessions and clear border restructuring, no deal is likely in the near term.
Venezuela remains a growing factor in the global supply picture. The first cargoes under the new framework were purchased by Phillips 66 and Valero, with revenues shared between the U.S. and Venezuela to help rebuild oil infrastructure. Venezuelan crude is also beginning to flow back into Europe after nearly a year of halted shipments, and additional barrels are expected to reach the Gulf Coast. While this crude will help refiners, it adds pressure to U.S. shale producers, particularly in the Permian. Halliburton announced it is shifting some production assets overseas as rising costs and lower prices make U.S. drilling economics less attractive. Incentives to expand drilling in the Permian appear to be approaching a plateau. Outside the Americas, Libya announced it is opening its oil sector to foreign investment for the first time in 20 years, another potential source of incremental supply. Mexico continues expanding offshore production and remains committed to high output regardless of current price levels. The only bullish news on global oil supplies is still with Kazakhstan. Kazakhstan’s Tengiz oilfield continues to have problems and declared force majeure, with two production sites now offline for an additional 7–10 days. The outage removes roughly 1 percent of global supply in the near term, offering some short-term support to prices. However, again, this supply issue is temporary.
The International Energy Agency has begun trimming its forecast for a large crude surplus this year, now suggesting demand may begin to balance supply at some point in 2026. I remain skeptical of these revisions, as supply growth from Venezuela, Libya, Mexico, and OPEC continues to build. However, the U.S. dollar has also been weakening, which is helping to put upward pressure on crude prices, even as the administration continues to signal a preference for lower energy costs. In addition, EIA reported large builds in crude oil, distillate, and gasoline inventories this week. I still remain cautious that the current run-up in crude price is temporary. Many of the supply issues will be resolved and a lot of new crude sources will be coming online in 2026. I would not hedge too far into the future at this time and place.
The Chicago spot market experienced significant volatility this week, driven almost entirely by diesel. Diesel prices jumped more than 30 cents as crack spreads widened sharply, fueled by a polar vortex impacting the Midwest and Northeast along with ice storms in the South. Heating demand in the Northeast surged, tightening supply and pulling barrels away from the Midwest. Cold weather also raises the risk of refinery issues. I expect diesel prices to remain elevated at least until the February futures contract rolls off. Gasoline prices, by contrast, remained relatively stable, and I do not expect meaningful movement at the pump in the near term.
Propane prices continued to climb as demand spiked with the extended cold snap. Wisconsin is experiencing one of its longest stretches of cold in the past three years. With the pipeline into Wisconsin still operating at reduced capacity and under allocation, keeping retail storage filled has remained challenging. Logistics have become the primary issue, with freight rates rising sharply and pushing retail prices higher. If temperatures moderate after next week, propane prices may ease somewhat. Even at current levels, retail prices remain under $2.00 per gallon, and compared to fuel oil and natural gas, propane continues to offer strong value during these extreme cold conditions.
As always, if you have any questions, please feel free to give us a call. Stay warm and have a great weekend!
Best regards,
Jon Crawford
