Widening Conflict in the Shadows. The Energy Report 05/13/2026

Oil prices found a new way yesterday to put risk premium into the price as it became that other neighbors have attacked Iran somewhat in the shadows. Fox News, broke the story that the United Arab Emirates had used military action against Iran but apparently, they were not the only one. Reports say that  Saudi Arabia and Kuwait both responded to attacks by Iran started to worry the market that somehow this conflict is widening U.S. Treasury secretary Scott Bessent said the reason why Iran attacked these other countries is because of the pressure that is coming from the financial sanctions that the banks and these countries are putting on Iran.  The regime in Iran is becoming more economically isolated and with reports saying that Iran has not been able to export oil in the last 28 days by seas is crushing the Iranian economy and as president trump said yesterday it will be only a matter of time before the regime collapse at least economically.

That did little to ease diesel prices yesterday. As John Kemp of Kemp Energy noted, U.S. diesel prices remain at or near their highest levels since the war began, despite the recent pullback in crude. Including taxes, pump prices have averaged $5.64 per gallon nationwide so far this month, ranking in the 88th percentile of all monthly readings since the start of the century after inflation adjustment. That is up sharply from January’s average of $3.54, which ranked in the 32nd percentile. Global diesel supplies remain tight because of the loss of medium-density Middle Eastern crude and refiners’ focus on jet fuel production.

Yet at the same time, the good news is that refiners are ramping back up and coming online, which should y ease the pressure at the pump We’ve already seen wholesale gasoline and diesel prices dip nicely in some places, even as our nice little streak of small price drops took a breather yesterday.

Here are the latest national fuel price averages: the current average is $4.511 for regular, $5.005 for midgrade, $5.375 for premium, $5.659 for diesel, and $3.633 for E85. Yesterday’s averages were $4.504, $4.994, $5.366, $5.644, and $3.614, respectively. A week ago, averages stood at $4.536 for regular, $5.015 for midgrade, $5.388 for premium, $5.674 for diesel, and $3.669 for E85. A month ago, the averages were $4.125, $4.624, $4.996, $5.652, and $3.269. A year ago, they were $3.157 for regular, $3.648 for midgrade, $4.000 for premium, $3.529 for diesel, and $2.557 for E85.

Both the International Energy Agency IEA and yesterday the Energy Information Administration EIA came out with their outlooks on how they believed that the Strait of Hormuz closure is going to impact prices let’s start with the Energy Information Administration.

EIA Short Term Energy Outlook (STEO) says that global oil production faces significant headwinds from escalating Middle East disruptions, with Iraq, Saudi Arabia, Kuwait, the UAE, Qatar, and Bahrain collectively shutting in 10.5 million barrels per day (b/d) of crude output in April. The de facto closure of the Strait of Hormuz until late May has severely tightened supplies, though shipping traffic is expected to begin recovering in June. However, flows are unlikely to reach pre-conflict levels until later this year, keeping some regional production offline and triggering large inventory draws—particularly in May and June. As a result, EIA now forecasts global oil inventories will decline by 2.6 million b/d this year, a much steeper draw than the 0.3 million b/d projected in last month’s STEO.

On the OPEC front, the UAE’s departure from the cartel effective May 1, 2026, has been incorporated into our outlook, reducing OPEC’s projected spare capacity to an average of 2.5 million b/d in 2027 (down from 3.8 million b/d previously). Brent crude spiked to $138/b on April 7 amid the turmoil, averaging $117/b for the month. We expect prices to hold near $106/b through May and June as inventories fall by an average 8.5 million b/d in 2Q26. As Middle East production ramps back up, prices should ease to $89/b in 4Q26 and average $79/b in 2027. This volatile backdrop underscores the market’s sensitivity to geopolitical supply risks and the limited near-term buffer from spare capacity.

The International Energy Agency is worried about demand desertion The IEA said that Global oil demand is now projected to contract by 420,000 barrels per day (kb/d) year-on-year in 2026, averaging 104 million barrels per day (mb/d). This represents a significant 1.3 mb/d downward revision from the IEA’s pre-war forecast, which had anticipated growth of around 640 kb/d, and marks a further weakening from last month’s projection of an 80 kb/d decline.

The second quarter of 2026 is expected to see the largest drop, with demand falling by 2.45 mb/d year-on-year. The OECD region accounts for roughly 930 kb/d of this decline, while non-OECD countries, particularly in the Middle East and Asia-Pacific, contribute about 1.5 mb/d. Petrochemical feedstocks such as naphtha and LPG are among the hardest hit due to supply constraints, while aviation fuel demand remains significantly depressed as air travel activity runs well below normal levels.

Higher prices, a weaker economic environment, and widespread demand-saving measures are increasingly weighing on broader fuel consumption, including road transport. According to the report, demand destruction that began in the Middle East and Asia-Pacific is now spreading globally. Refiners have already made sharp cuts to runs, and end-user consumption continues to decline. While a potential deal that allows Hormuz flows to resume gradually from the third quarter could enable demand to swing back to growth later in the year, the IEA’s base case still forecasts an overall annual contraction for 2026.

On the supply side, the shock has been even more pronounced, with global supply projected to fall by approximately 3.9 mb/d to 102.2 mb/d. This imbalance is creating a substantial market deficit through most of the year and driving record inventory draws, which remains the primary factor behind elevated prices and market volatility.

Volatility has been absolutely marvelous for swing traders’ Long-term bulls who are riding the long side have a golden opportunity to hedge smart with options plays, locking in protection while keeping that upside exposure. And you better believe they’ll be glued to today’s PPI data after that hotter-than-expected CPI print.

The April CPI came in at a feisty +0.6% month-over-month, pushing the year-over-year headline to 3.8% (up from 3.3% prior), with core also firmer at around 2.8%. Shelter and gasoline were big drivers—classic energy and cost-push pressures keeping the inflation narrative alive. PPI for April drops this morning, with economists eyeing around +4.9% YoY after March’s +4.0% (which already beat softer expectations).

And keep a very comfortable eye on China—the vibes are upbeat as President Trump heads to Beijing for the big summit with Xi Jinping. He’s calling it a “wild one,” and with a powerhouse delegation of CEOs (think Musk, Cook, Boeing, energy execs, and more) in tow, the deal-making potential is off the charts. Expect announcements on big-ticket items: Chinese purchases of U.S. ag products (soybeans, beef, pork), Boeing jets, energy deals, and fresh investment flows. Talks around trade balances, tariffs, AI cooperation, and a possible new “board of trade/investment” are in focus—exactly the kind of wins that could juice commodities and risk assets.

Trump’s been all about the art of the deal, and this trip (with reciprocal visits planned) has that classic bullish undertone for U.S. exporters and energy plays. China’s own PPI just surged to its highest in years amid energy/metal strength—global growth tailwinds could be brewing.

Nat gas rally is struggling as supply side realities are starting to sink in again.  Tomorrow’s EIA Weekly Natural Gas Storage Report  and Fox Weather outlook will set the tone. The market expects a  solid injection in the +70-85 Bcf range (consensus around +76 Bcf or so, with some estimates +67-86 Bcf). Last week’s was +63 Bcf (vs. expectations of +72 Bcf), leaving storage at 2,205 Bcf as of May 1 — well above the 5-year average.

This keeps the injection season building robustly into summer, which is generally bearish unless offset by strong demand signals. Markets will watch for any surprises (bullish miss = smaller build due to lighter winds/power demand).June NYMEX nat gas futures around $2.80-$2.85/MMBtu, with recent volatility — up on warmer forecasts earlier this week but giving some back.

The ox Weather app suggests a potential pattern shift toward warmer-than-normal temps, especially in the eastern/southeastern US into late May. NOAA and others highlight above-normal heat May 18-24, which could boost cooling/power demand (bullish for nat gas as AC load rises).

Shorter-term, some cooler systems linger in the Midwest/Great Lakes/Northeast, but the broader “strat” (pattern/stratospheric influences or just seasonal shift) turning warmer fits what you’re seeing on Fox Weather. This is helping support recent price pops despite ample storage — summer cooling + LNG exports remain key upside drivers. Recent GEFS/CFSv2 ensembles show mixed but leaning warmer anomalies ahead, which traders are pricing in for power burn.

So get ready to download that Fox Weather ap! Also stay tuned to the Fox Business Network Invested in you. Get your account open by calling me at 888-264-6556 or by emailing me at pflynn@pricegroup.com