Week in Review: Tightening Inventories and Policy Moves Shape Energy Outlooks

Fuel markets saw a battle between tightening inventories and growing policy-driven uncertainty over the course of the week. U.S. diesel inventories dropped to 28.7 days of supply—well below both last year and the five-year average. Under normal circumstances, this would shore up a seasonal price rally, especially as refinery maintenance limits production. Despite this tightening supply, diesel futures prices have fallen since January, gesturing that broader macroeconomic and policy concerns are overriding traditional supply-demand dynamics. Market participants appear to be in wait-and-see mode, with falling open interest indicating that many end users and marketers are staying on the sidelines until greater clarity emerges.

Adding to the cautious sentiment are fresh trade policy shifts and geopolitical developments. Oil prices held near one-month highs midweek as the market responded to new U.S. tariffs targeting buyers of Venezuelan crude. While intended to pressure Caracas, the move has created a chain reaction, with Canadian heavy crude benefitting and Western Canada Select’s discount narrowing to its lowest since 2020. U.S. Gulf Coast refiners are increasingly turning to Canadian barrels as a substitute for sanctioned Venezuelan supply. Skepticism remains that crude prices will return to their early 2025 highs, citing uncertainty surrounding future tariff announcements and their impact on global demand.

On the domestic production front, challenges continue to mount in the Permian Basin. Although output has reached record highs at 6.5 Mbpd, growth is slowing. As core drilling areas are depleted, producers are turning to fringe acreage with higher water and gas content, driving up breakeven costs. Water disposal restrictions tied to seismic risks and rising steel prices, exacerbated by new tariffs, are compounding cost pressures. According to a recent Dallas Fed survey, energy executives are increasingly wary of the administration’s trade agenda, which they say could hamper production and investment.

Meanwhile, the weekly EIA report painted a mixed picture. U.S. crude inventories rose by 1.7 million barrels, while refinery utilization increased slightly to 86.9%. Distillate stocks fell by 2.8 million barrels with higher demand, and total petroleum inventories dipped modestly. Despite fluctuating fundamentals, LNG exports remain a key stabilizer for global energy flows.

Capping off a volatile week, a federal judge ruled against a major Gulf of Mexico lease sale mandated by the Inflation Reduction Act, citing inadequate environmental review. The decision could either void existing leases or impose stricter development terms, adding another layer of uncertainty to the U.S. energy landscape.

Prices in Review

Crude prices opened the week at $68.35 on Monday and showed modest gains through the week. Prices held steady at $69.16 on both Tuesday and Wednesday before climbing to a weekly high of $69.96 on Thursday. On Friday morning, crude opened slightly lower at $69.91. Overall, prices rose by $1.56 over the week, marking a 2.28% increase.

Diesel prices opened at $2.2547 on Monday and experienced a steady upward trend throughout the week. The price rose slightly to $2.2592 on Tuesday and continued climbing to $2.2857 on Wednesday. The week’s high came on Thursday at $2.2955 before a slight dip on Friday to $2.2829. Overall, diesel prices increased by $0.0282, representing a 1.25% gain for the week.

Gasoline prices opened at $2.1927 on Monday and steadily increased throughout the week. Prices rose to $2.2080 on Tuesday and continued gaining to $2.2133 on Wednesday. The upward momentum continued with a jump to $2.2352 on Thursday, reaching a weekly high of $2.2482 on Friday. Overall, gasoline prices climbed $0.0555, reflecting a 2.53% increase for the week.