“Show Me The Barrels”: Crude Prices Climb Amid Tight Exchange‑Approved Supply

Petroleum prices are rallying again Tuesday, as oil markets play a game of “Show me the barrels” after weeks of hearing about excess supply. ULSD futures are leading the move higher, up 4.5 cents in early trading, while oil prices are up around $1/barrel and gasoline prices are up about 2 cents. Financial markets were able to recover from the FED/DOJ drama Monday with most equity indexes erasing heavy morning losses and removing the risk of “risk off” selling for the time being.

The forward curves for Brent and WTI crude continue to hold in a backwardated curve for the next 12 months before flipping into a steady contango for the following 2 years. That crooked smile shaped curve seems to be telling the story that while plenty has been said about a glut of oil, the reality of dual markets for sanctioned vs unsanctioned barrels is keeping supply for exchange-approved supply relatively tight.

The White House is threatening new tariffs on countries doing business with Iran in an effort to put pressure on the regime as violent crackdowns on protesters are reported. Most of Iran’s oil exports are already sanctioned and transacted through the shadow tanker fleet so it's not immediately clear whether this latest threat will slow their output. Just like in Venezuela, there’s a real threat of military intervention in Iran, but it seems unlikely that the country’s oil assets would be targeted as they’re key to the long-term economy of both countries, not to mention part of keeping prices low globally.

The ULSD forward curve also tells an interesting story with prices at the front of the curve down more than a dime from where they were a month ago, while values 2-3 years in the future have actually moved higher during that time. That flattening of the curve suggests the concerns about a supply squeeze have eased as the U.S. has provided waivers to some European facilities with Russian ties to continue operating, and Lukeoil’s sanctioned assets are finding plenty of interested buyers. Softer prices at the front end of the curve also seem to be aided by a sharp drop in natural gas prices in recent weeks as warmer weather reduces heating demand.

3 northern California refineries have reported 10 different minor flaring incidents since Friday as they undergo planned and unplanned maintenance. PBF’s 157mb/day was not one of the 3 facilities to report flaring over the past few days, but reports suggest they’ve hit another snag in their work to bring that facility online after a fire last February, which was already delayed after missing a December 2025 deadline. PBF is also in the middle of 2 weeks’ worth of planned maintenance at their 166mb/day Torrance Refinery, which is likely to complicate any efforts to supplement their Bay Area supply should the latest Martinez upset be severe.

The CPI inflation reading ticked up by .3% for December and 2.7% for the year A 3% drop in gasoline prices for the year remains a key influencer keeping inflation from being even higher while electricity prices jumped 6.7% on the year and natural gas prices surged by 10.8%. The stubbornly high inflation remains above the FED’s 2% target and suggesting any more interest rate cuts may remain on hold near term despite pressure from the President to lower them.