Even in a dangerous world where CNN is reporting that intelligence suggests that Israel is preparing to strike Iranian nuclear facilities driving oil prices higher, the cost of gasoline continues to be at an extreme low level. In fact, according to GasBuddy, these are the lowest gasoline prices are going into the Memorial Day holiday weekend in over 20 years when adjusted for inflation.
Projections released on Tuesday indicate that the national average price of a gallon of gasoline will be $3.08 on Memorial Day. And forget about what you heard about consumer confidence, there is nothing like lower gasoline prices to feed consumer confidence.
Last week the markets freaked out when consumer confidence fell. This was partly influenced by uncertainty and volatility in the stock market, as well as fear-mongering reports from some mainstream non-business media concerning President Trump’s tariffs and dubius claims that tariffs cause inflation. But I expect a big bounce back in consumer confidence as gasoline money ends up back in the pockets of consumers.
Americans love nothing more than low gasoline prices and they will be cheering the news that gas prices are lower to start the traditional summer driving season. In fact lower than they’ve been in years.
President Trump’s hand of lower regulations, lower taxes and the potential for lower inflation in the future is already seen in oil prices that start to price in a new era of more efficient supplies. This will be an era where we can get the cost of production for each barrel of oil lower.
At the same time increasing demand growth in the United States as companies in the S&P 500 and Russell 3000 are talking about “reshoring” at an unprecedented scale to restore their businesses back on American soil. This achievement is remarkable, especially considering tight global inventories and ongoing supply risks.
Oil prices got a pop on that CNN report that Israel is going to potentially attack Iranian nuclear facilities. Apparently this report was based on intercepted Israeli communications and observations of Israeli military movements but if I know the Israeli military they don’t usually get their communications intercepted unless it’s on purpose”. So, suggesting that Israel is getting ready for a immediate strike is probably an attempt by Israel to speed negotiations between the US and Iran but also to let all parties know that if a deal cannot be reached Israel is ready to act.
The impact of an attack is unknown, but it probably wouldn’t lead to a World War despite some suggestions. CNN reported that the Trump administration is unlikely to back an Israeli strike on Iranian nuclear sites unless Tehran provokes. Iran’s supreme leader Ayatollah Ali Khamenei stated he doesn’t expect meaningful results from indirect nuclear talks with Washington.
We saw the American Petroleum Institute report an increase in crude supplies of 2.499 million barrels and saw a big drawdown in gasoline supplies of 3.328 million barrels. That drive down in gasoline would suggest that consumers are starting to bask in lower gasoline prices they are topping off the tank. That drop in gasoline supplies also indicates that we could see a very explosive weekend when it comes to gasoline demand over this holiday.
Of course, on the Memorial Day holiday, it usually comes down to the weather. Fox Weather says it may rain on your parade and a powerful nor’easter is expected to develop Wednesday night, bringing driving rain and strong northeasterly winds that will peak Thursday. The heaviest rainfall, totaling 1-2 inches with locally higher amounts, is expected from the mid-Atlantic to eastern New England. Wind gusts of up to 50 mph are possible along the New England coast. Travel delays are likely ahead of a busy Memorial Day travel weekend.
The API also showed a drawdown of 1.4 million barrels on distillate inventories as they continue to see very strong demand as farmers start putting in the rest of the crop.
The market is concerned not only about Iran but also about the potential for peace or at least a ceasefire between Russia and Ukraine. Quantum Commodity Intelligence reports that Russia and Ukraine will start immediate negotiations for a ceasefire, following President Trump’s call with President Putin. However, Moscow officials dispute Trump’s positive outlook, and analysts warn that high territorial demands could prolong truce talks and lead to sanctions on Russian oil.
This comes as the EU plans to lower the price cap on Russia’s oil exports from $60/b to $50/b and is targeting Moscow-controlled shipping. Of course, the price cap idea was never going to work, it hasn’t worked so I don’t know why they’re wasting their time.
The markets are already looking beyond the Moody’s downgrade from last week that shook up commodity prices. Obviously, the trade negotiations between the United States and China are going to have a big impact but if we see any progress on that front the stock market could really rally.
In the meantime, the gold market seems to be the perfect hedge for all of these situations and is really starting to score not only on the geopolitical situations but basically on the physical demand for gold.
Meanwhile, ongoing trade tensions between the US and China might impact both economies, including a potential downgrade of the US credit rating.
Quantum Commodity Intelligence also reported that OPEC on Tuesday launched a scathing attack on IEA’s latest revision to its oil demand forecasts that wiped out three years’ worth of global stock builds overnight, potentially setting up a much more bullish outlook for 2025. According to the IEA’s May OMR, the world consumed 350,000 bpd more oil last year than previously reported, 330,000 bpd more in 2023 and 260,000 bpd more in 2022. Most of it came from underestimates in Nigeria and Egypt, following new data.
While it is a modest change compared with global oil demand of more than 100 million bpd, given the relatively balanced market of the last few years, it effectively wipes out all the stock builds it has seen since 2022, totaling nearly 350 million barrels of oil. “Storage tanks are a lot less full than the IEA had been reporting previously and global balances are much tighter. It has shifted an outlook that was viewed as bearish to one that was on the bullish side,” OPEC said Tuesday in an open letter on the subject.
The IEA has steadily changed its view on this year’s oil balance. Around six months ago, it saw supply outstripping demand by more than 1 million bpd in 2025, but that was down to 695,000 bpd in its May report according to Quantum Energy Intelligence.
Many of my longtime readers know that I’ve been extremely critical of the International Energy Agency going back decades. My problem has always been that the International Energy Agency has lost its core mission of energy security. They became a mouthpiece for the green energy movement and were willing to put out bad data to try to justify the perception that we could successfully stop investing in fossil fuels and move to alternative energy with simplicity and ease.
That misinformation led many countries down the path of energy perdition. Trillions of dollars of misspent money have hurt global economies and put an undue burden on the poor and the middle class.
Having said that, we do think that supply and demand should dictate the prices and should be higher. There are concerns from some shale producers that prices are too low and they’re cutting production.
Still the reality is we’re seeing a readjustment. We probably do need prices to come up a little bit to keep the oil flowing to meet demand. So, we would suggest that the potential breakout to the upside of oil is clear.
Be somewhat prepared for the possibility that Israel does strike Iran and if that happens, we could see a major price spike. That would more than likely be short lived but don’t be unprotected for that possibility even if it means buying some cheap out of the money calls for protection.
Natural gas is experiencing significant fluctuations. The recent decline below the 200-day moving average was influenced by perceptions of increased production and moderate demand due to weather conditions. However, traders have returned with a focus on the broader picture, where natural gas appears highly bullish. The fundamentals for gas as we approach summer are strong, and a particularly hot season could drive prices upwards.