Market Update: OPEC Supply Surges, Tariffs Tighten, and Fuel Prices Slip

The global oil and gas market is undergoing a significant shift as crude prices tumble, and economic pressures weigh heavily on supply-demand dynamics. In today's article, Andy Milton, SVP of Supply at Mansfield Energy, offers timely insights into the factors shaping today's energy landscape - from OPEC's surprise moves to renewable fuel slowdowns and the impact of new tariffs.

Crude Prices Fluctuations

Just weeks ago, crude prices hovered in the $70s but recently dropped to as low as $50 per barrel. However, today prices have steadily climbed back. Gasoline and diesel futures are up 5-6 cents, and crude has risen over $2 per barrel, pushing WTI above $63.

This price movement is largely driven by factors such as increased production from OPEC, who advanced their meeting date and committed to boosting output. Saudi Arabia has indicated it could ramp up production further if members fail to comply. "They've essentially said, if you keep overproducing, we'll flood the market with an additional 2 million barrels per day," Andy explains.

Despite the added output, the world is not technically oversupplied-yet. However, rising volumes are meeting concerns about demand, especially with the uncertainty surrounding the tariff deal between the U.S. and China. The new announcement includes a reduction of the U.S. tariff on Chinese imports to 30% from its current 145%, with China lowering its levy on American goods to 10% from 125%. These tariff changes come after weekend negotiations in Geneva, Switzerland.

The tariffs have contributed to widespread unease in the energy sector, disrupting global trade flows and increasing market volatility. This unpredictability, combined with concerns over U.S. debt levels and fiscal policy decisions, has only amplified economic anxiety, exerting additional pressure on fuel pricing dynamics.

Diesel Inventories

According to the latest DOE data, U.S. diesel inventories are 13% below the five-year average. With gasoline just 3% below, diesel's tightness is particularly striking. Refinery closures are adding to the concern.

As gasoline demand softens post-2019, many refiners are finding it difficult to stay profitable. With weak margins - "321 cracks" in the low $20s - many refiners may be forced to shut down, disproportionately impacting diesel and jet fuel supplies.

Biofuels: Production Cuts and Demand Pauses

According to Andy Milton, renewable diesel and biodiesel markets are also experiencing turbulence. "Production of biofuels is down 40-60% from Q4 2024 levels." That's causing prices to rise and making it harder for companies to maintain sustainability targets.

RIN prices (Renewable Identification Numbers) have remained steady, but future prices will depend on whether the EPA tightens or relaxes the Renewable Volume Obligation (RVO). A stronger RVO could push RINs higher, while exemptions would likely keep them flat or falling.

Demand Outlook: Resilient but Fragile

Although there are fears of slowing demand, the U.S. fuel consumption has remained surprisingly resilient. Gasoline demand has been seasonally soft but still holding up. As summer driving season approaches, utilization could rise into the 90% range - temporarily boosting gasoline supply and refining activity.

Looking ahead to summer, Andy Milton predicts crude prices could range from $50 to $70 per barrel. "If unemployment rises to 5.5-6%, crude could dip into the mid-$40s," he explains. But geopolitical disruptions, OPEC strategy shifts, or stronger-than-expected demand could send prices back to $80 or more.

Despite the uncertainty, it may be a good time for businesses to evaluate fixed-price fuel contracts. Locking in pricing on a portion of fuel volume can help protect margins and support budget stability, especially during periods of market softness.

Whether managing fuel costs, adjusting sustainability strategies, or responding to trade disruptions, businesses should remain informed and flexible. The coming months are expected to be pivotal, with economic and geopolitical developments likely to influence the energy landscape further. As Andy Milton summed it up: "Be prudent, stay nimble-and watch the next two months closely."

Ready to learn more?

If you'd like to hear more of Andy Milton's in-depth analysis and comments on current market dynamics, be sure to listen to the latest episode of FUELSCast -Mansfield Energy's official podcast covering energy trends, market movements, and expert insights. In this episode, Andy discusses everything from OPEC decisions and refining capacity to the future of renewable fuels and the impact of global tariffs.

Subscribe to FUELSCast on Spotify or Apple Podcasts to stay informed and never miss an episode.