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The Energy Report

Phil Flynn
http://www.pricegroup.com/
pflynn@pricegroup.com


China Oil Syndrome. The Energy Report 05/27/2026

Crack spreads are plunging along with oil on hopes for diplomatic Wall Street Journal, hardline factions in Iran are trying to keep up the attacks, while others are eager to negotiate. The US negotiated with some Iranian Revolutionary guard boats, sinking them into the ocean, and that raised fears that Iran-US talks would stall. The oil complex selloff has doom and gloom oil predictors crying foul demanding that the machines get turned back on and are complaining that the market is somehow way underpricing what they see as major upside price risk.

et one surprising development oil traders did not have on their Bingo card was China’s falling imports despite what may be the largest global supply disruption on record. This is largely due to China’s massive strategic oil stockpile and its successful management of demand destruction. Built up over decades, those reserves have helped cushion the impact even as the country’s oil imports have fallen sharply — and that’s on top of record U.S. production and exports.

John Kemp Energy pointed out an Oxford Energy report that showed China is pulling several levers to slash its crude oil imports amid the Hormuz crisis, which is helping keep global oil prices lower than expected.

Normally China imports around 11 million barrels per day (mb/d). In April 2026, that dropped sharply to 9.3 mb/d, with even lower flows expected in May and June.

Despite the supply shock from the Middle East, China has surprised markets by not rushing to buy expensive replacement crude or heavily tapping its giant strategic reserves. Instead, refineries are cutting processing rates, traders are being picky about prices, and the country is using its huge commercial stockpiles as a buffer. Beijing has avoided telling companies to “buy at any cost,” unlike in past crises.

The main levers China is using include modest refinery run cuts (around 5%, potentially up to 10% for a short time), shifting refinery yields toward transport fuels (gasoline/diesel) over petrochemical feedstocks, limiting product exports, and leaning more on coal-to-chemicals to offset some losses.

This flexibility means China can theoretically keep seaborne imports as low as 7.2–8 mb/d for several months without running out of key fuels, though it comes with trade-offs like squeezed refining margins and pressure on the chemicals sector. A deeper 10% cut is harder to sustain long-term because it risks fuel shortages and bigger chemical shortfalls that coal-to-chemicals can’t fully cover.

Overall, China’s cautious, cost-conscious approach — rather than panic buying — has reduced demand pressure on the global oil market. China also most likely looked at the oil curve and realized it was not time to panic, probably taking a cur from George Baily in it’s a Wonderful Life.

This lack of aggressive Chinese buying is a key reason oil prices have not spiked more dramatically despite the ongoing disruption in the Strait of Hormuz. The situation remains manageable in the near term but will be tested as stocks are slowly drawn and summer demand arrives.

After yesterday’s brief jump on U.S.-Iran tensions, reports that Iran is not targeting some ships and that tankers are moving again have raised hopes that the Strait of Hormuz will remain open.

Secretary of State Marco Rubio also said the world will not tolerate any illegal effort to shut down the strait. Signs of progress in talks with Iran, along with the Memorial Day holiday, are easing gasoline futures and could soon lead to lower prices at the pump for growth and a shoulder-season lull in gasoline and diesel, a shift also reflected in yesterday’s better-than-expected consumer confidence data.

Maybe the dip in gas prices helped. According to AAA, the national average for regular gasoline has retreated to $4.459 a gallon. That’s down from $4.491 yesterday and a nicer drop from $4.555 just a week ago. Mid-grade is now sitting at $4.958, premium at $5.331, diesel at $5.579, and E85 at a friendlier $3.553. ‘

While we’re still paying more than we were a month ago (and way more than last year), it feels like the pump is finally cutting us a tiny bit of slack after that recent surge and the real possibility that gas prices have peaked..

What’s behind the happy retreat? Crude oil has cooled off after its recent geopolitical rollercoaster, and that relief is slowly making its way to the pump. Memorial Day demand is starting to settle, refineries are holding steady, and the usual “rocket up, feathers down” pricing dynamic is finally working in our favor for once.

Don’t get me wrong — these prices are still painfully high compared to where we were a year ago, but every little dip helps when you’re filling up the tank. On top of that the Trump Administration and actions to waive the Jones Act, put waiver on Summer time blend regulations and SPR releases have helped with this gas price peak.

Think of it as the market taking a deep breath before summer really kicks into high gear. Grab this modest victory while you can! Prices are easing, but they’re still watching every headline out of the Middle East. Fill up, enjoy and keep an eye on crude — because in this business, things can flip faster than a bad beach day forecast.

Nat gas is trading lower near the $2.86–$2.90 range this morning, feeling the weight of robust supply demand. The front-month contract has been battling around the $2.90–$3.00 level, reflecting ample production and healthy storage injections that continue to pressure prices despite longer-term bullish undercurrents from LNG exports and power demand. The supply story remains firmly in the driver’s seat. U.S. dry natural gas production continues its upward march, with the EIA projecting marketed output averaging around 118.9 Bcf/d for 2026 — a solid increase supported by associated gas from higher oil prices, particularly in the Permian and Haynesville. Recent weekly storage injections have been strong last weeks +101 Bcf, above expectations, pushing inventories to comfortable levels — currently sitting above the five-year average.

This abundance is keeping the market well-supplied heading into summer, with forecasts pointing to storage ending the injection season in October notably above normal. Producers are showing resilience even as drilling moderates in response to lower prices.

On the demand side, we’re in that classic late-spring transition. Mild shoulder-season weather has kept a lid on heating needs, while early cooling demand is just starting to stir. LNG exports remain a key support, with U.S. facilities ramping up and global prices elevated due to international factors. Power sector demand is expected to grow modestly this summer as air conditioning loads pick up.

Here’s where things could get interesting and why you need to download the Fox Weather Ap. Fox Weather highlight that outlooks favor above-normal temperatures across much of the U.S. through June–August, particularly in the South, Southeast, and parts of the Midwest and West. This should boost cooling degree days (CDDs) and lift gas-fired power generation as residents crank up the AC.

While no extreme heat dome is locked in yet, the probability tilts warmer than average, which could tighten the balance if it coincides with strong LNG pull and steady production. Early hurricane season outlooks (below-normal activity projected) suggest fewer major disruptions to Gulf infrastructure, potentially keeping flows steady. Watch the Fox Weather 8–14 day forecasts closely — a shift toward sustained heat could quickly flip the script from bearish injections to bullish demand signals.

Yet for now the bears are back in control for now, riding a wave of flowing supply and comfortable storage. But don’t count out the summer heat — this market has the structural tailwinds of rising LNG exports and power demand that could turn $2.86 into a launchpad if Mother Nature brings the sizzle. Traders are positioned for volatility as we head deeper into the injection season and toward those critical summer months.

Make Sure you get that Fox Weather app and also make sure you stay tuned to the Fox Business Network. Call today to open your account, you can reach out at 888-264-5665 or email me at pflynn@pricegroup.com.



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Phil is one of the world's leading energy market analysts, providing individual investors, professional traders and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline and energy markets. Phil's market commentary, fundamental and technical analysis, and long-term forecasts are sought by industry executives, investors and media worldwide.

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Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Alaron Trading Corp. its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

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