Economic Fears Becoming Most Important Story Of 2025

Energy markets are limping into the weekend trying to snap a multi-week losing streak as economic fears have taken control of the daily price action and the US stock market, which was an afterthought for energy markets most of last year, becomes perhaps the most important story for 2025.

So far, reports that Russia has agreed “in principle” to a 30-day cease-fire in Ukraine seem to be largely shrugged off by energy markets as an actual end to hostilities still appears to be a long way off.

WTI is trying to snap a 7-week losing streak but is currently just 13 cents above last Friday’s close, which is not exactly a resoundingly optimistic bounce. If you subscribe to the theory that there’s no such thing as a triple bottom on charts, then the lows of $65.27 in September, $65.22 March 5th, and $65.29 on March 11th are begging to be broken, which would set a new target for crude oil below $60.

ULSD prices are looking even more bearish after touching fresh lows for the year this week as they extend their losing streak to 4 straight weeks, and now look poised to take a run at the $2 mark. The correlation between daily price moves in the S&P 500 and ULSD futures over the past 30 trading sessions was 93.7%, the strongest reading of the past 5 years as attention appears to have shifted from supply concerns to demand fears over the past month. For most of 2024 there was little if any positive correlation between energy and equity markets, so the new patterns may take some readjustment for those who got comfortable watching other measures.

The correlation between moves in the U.S. Dollar and WTI is also close to a 5-year high over the past month, with just a slight problem that the correlation between those two is “supposed” to be negative as a stronger dollar increases the cost of oil for international buyers. The trade wars certainly appear to be playing a role in the less-usual positive correlation between asset classes as investors seem to be shifting more dollars away from U.S. markets, contributing to a drop in stocks, petroleum futures and the dollar itself.

Inflation expectations, as measured by the spread between 5-year treasury bonds, and 5-year inflation-protected treasuries (TIPS) have increased to their highest levels in more than a year. That spread has been a helpful indicator for crude oil prices over the past decade (see chart below) but has done little so far to encourage any buying.

One point to watch today: The recovery rally in RBOB futures this week stalled out right at the 200 day moving average for the continuous charts around $2.16. If the bulls can’t push prices above that level, there’s a growing argument that we’ll see prices slide below $2 to fill in the chart gap left by the March/April RVP roll, and perhaps test the multi-year low at $1.85 set back in September.

LA CARBOB basis values jumped more than 12 cents in Thursday’s session, following reports of flaring from 4 of the 5 refineries in the area over the past two days, while diesel basis saw a much smaller increase ticking up a couple of cents. San Francisco spot markets also ticked higher following the news, as PBF’s apparent plan to lean heavily on its Torrance (LA area) refinery to offset lost production while Martinez (SF area) needs most of the year to complete repairs from a February fire now looks to be in jeopardy after the latest upset at Torrance.

Down but not out: After a brutal year in 2024 Neste announced it has completed a new bond offering that will allow the company to move forward with expanding renewable production capacity at its Rotterdam refinery.