The Energy Report: Perceptions and Misconceptions

Oil gapped lower on OPEC perceptions and misconceptions.  OPEC and Russia agreed over the weekend to raise output by another 411,000 barrels per day in June, repeating May’s production hike causing a downside opening Sunday night gap that caused {{|WTI Crude}} to fall as much as $2.98 a barrel.

The drop wasn’t solely due to increased production, but also the false perception that it was meant to reprimand producers like Kazakhstan and Iraq. Some even believed it was the start of a production war with Saudi Arabia aiming to regain market share. Yet despite the increased pace of bringing back production cuts, nothing could be further from the truth. Amena Bakr said she spoke to more than five OPEC delegates, and they all said that the plan about raising production to send a message is all fiction. Every OPEC official that she spoke to reiterated that the increases in production are going to depend on market conditions and that nothing was discussed about what’s going to happen beyond June.

Despite concerns regarding a slowdown of oil demand in China and the ramifications of the trade war, OPEC iss responding to market conditions and demand have shown better-than-expected results. Demand has been strong enough that Saudi Arabia increased their June Arab crude oil price by $1.40 per barrel to Asia, rising from $1.20 in May, according to Amena Bakr.

These false perceptions and misconceptions started with reports in the press from unnamed OPEC sources spreading rumors about the upcoming OPEC meeting. The oil price dropped due to reports that Saudi Arabia warned OPEC producers about a potential production war. However, the Bloomberg article that triggered the sell-off lacked credible sources from Saudi Arabia, instead referring to an earlier dismissed Reuters article. Although Saudi Arabia did increase production, this was somewhat expected and driven by market demand rather than a desire to punish non-compliant producers.

The production cut is part of the reduction of the 2.2 million barrels per day adjustment announced in November 2023. Based on December 5th, 2024, resolution and reaffirmed in 2025, this decision began to increase last month. OPEC members committed to complying with quotas will provide updated compensation plans for overproduced volumes.

AAA says that the current average of regular unleaded gasoline is $3.16 and a half cents that’s the same as yesterday it’s actually two cents higher than a week ago though it is down about $0.10 from a month ago.

After Sunday’s sharp decline, oil prices are rebounding due to increased geopolitical risks and continued strong demand for gasoline and diesel. And despite the decline in crude oil prices, retail gasoline prices haven’t fully reflected the drop mainly because the demand continues to be very strong here in the US.

President Trump stated in a “Meet the Press” interview that he would only accept the complete dismantlement of Iran’s nuclear program. He expressed a desire for Iran to succeed but insisted they cannot have nuclear weapons. Meanwhile, Marco Rubio indicated openness to a civilian nuclear program for Iran, though the opportunity for Iran appears to be narrow.

Reuters reported that, “A missile fired by Yemen’s Houthi rebels towards Israel on Sunday landed near the country’s main international airport, causing panic among passengers and drawing threats of retaliation against the group and Iran. Yemen’s Iran-aligned Houthis claimed responsibility for the missile strike that struck near Ben Gurion Airport, the latest in a string of attacks, saying they are acting in solidarity with Palestinians in Gaza. Obviously, that’s going to complicate the talks with Iran.

The concerns about demand destruction are real. Any sign that we might get some type of a deal with China could be huge. Right now there seems to be no direct talks but a lot going on underneath the surface. In the meantime, the lower prices of gasoline here in the US will keep demand strong and that will keep our refineries humming. Day trades and swing trades in oil are very attractive. Trading crack spreads are also a good way to play it.

Natural gas is having a pretty good jump tonight. We’ve had some below normal temperatures but at the same time we’re seeing expectations of strong demand. Cold temperatures in January and February depleted US storage in the inventories and ended March at 4% below the five-year average expectations of more exports is going to keep the market solid .

Fox Weather is reporting a rather unusual weather pattern for early May that is setting up across the U.S. and forecasters warn that it will lead to a stagnant pattern with prolonged periods of warmth in some areas and steady rain in others. The pattern, known as the “Omega block,” is named after the Greek letter Ω and disrupts the usual zonal flow of weather systems. As a result, two distinct regions of precipitation are expected to dominate the workweek: one stretching from the Southwest to the southern Plains and Gulf Coast, with another impacting the Northeast and mid-Atlantic.