U.S. crude oil inventories saw a massive 7.7-million-barrel weekly increase, yet remain about 6% below the five-year average, according to EIA data.
WASHINGTON D.C., July 31, 2025 – Geopolitical tensions and shifting trade dynamics are creating a volatile energy market, with Indian refiners halting Russian oil purchases this week. This move follows President Donald Trump’s increased pressure on Russia regarding Ukraine and renewed optimism over U.S. trade disputes. Meanwhile, Federal Reserve Chair Jerome Powell faces growing dissent as two officials advocated for immediate interest rate cuts, signaling a potential crack in his hawkish stance.
Fed’s Steady Hand vs. Economic Signals
Fed Chair Jerome Powell is holding firm on monetary policy, resisting calls for interest rate adjustments despite indications of a potential shift. For the first time since the 1990s, two Federal Reserve officials—Governor Christopher Waller and Vice Chair for Supervision Michelle Bowman—broke ranks, urging a 0.25% rate cut. Their dissent comes as inflation targets appear met, economic growth is rising, and the housing market shows strain. Powell, however, maintains that the Fed’s primary role is achieving its dual mandate of 2% inflation and maximum employment, stating the Fed’s actions are not the main driver of mortgage rates, which are more influenced by market conditions and housing shortages.
- Indian state refiners have stopped buying Russian oil due to tightened discounts and U.S. pressure.
- Two Federal Reserve officials called for immediate rate cuts, a rare dissent since the 1990s.
- U.S. crude oil inventories surged but remain below the five-year average, while gasoline stockpiles dropped.
- Natural gas exports are projected to more than double by 2037, driving infrastructure development.
- Shale oil production is expected to rebound if prices rise sufficiently, according to energy analysts.
Is the Fed’s refusal to cut rates based on economic data or other factors?
Powell’s insistence on maintaining higher rates amid stable inflation, a constrained housing market, and robust GDP growth has fueled debate. Critics suggest the Fed’s stance might be influenced by non-economic factors, making its decisions appear uninformed or political. Greater Fed clarity could improve homeownership accessibility.
Energy Market Shifts and Oil Dynamics
Oil prices are holding strong above the 200-day moving average, signaling a robust market. This positive trend persists despite recent Energy Information Administration (EIA) reports. U.S. refiners are increasing distillate inventories, showing impressive responsiveness to demand. However, crude oil inventories saw a substantial 7.7-million-barrel build, likely due to weather disruptions in Texas affecting exports and imports. Despite this, crude oil is still about 6% below its five-year average.
Gasoline stockpiles decreased by 2.7 million barrels, leaving them about 1% under the five-year mark. Distillate inventories, while boosted by 3.6 million barrels, remain roughly 16% below the five-year average. Total commercial petroleum inventories climbed by 7.1 million barrels last week.
U.S. refineries operated at a strong 95.4% capacity, producing 16.9 million barrels of petroleum products daily, with gasoline output at 10 million barrels per day and distillate fuel production at 5.2 million barrels per day. U.S. crude oil imports averaged 6.1 million barrels daily, 11% lower than last year. Over the past month, U.S. petroleum consumption averaged 20.8 million barrels per day, up 1.5% from last year. Gasoline demand fell 3%, and distillate fuel use dropped 4.1%, while jet fuel demand surged nearly 9%.
Energy analyst Tim Dallinger notes that ready-to-use gasoline stocks are tight, impacting the gasoline crack spread which continues to look bullish over heating oil.
The outlook for U.S. shale oil production remains optimistic, with analysts like Anas Alhajji, a former OPEC adviser, believing that higher prices will spur increased output. Sanctions and drops in other metals are currently supporting oil prices, with a tight gasoline supply contributing to a bullish outlook for the gasoline crack spread.
Natural Gas Outlook and Infrastructure
Natural gas prices are seeing support due to hot temperatures not fully meeting expectations and strong U.S. production. The EIA projects a significant increase in natural gas flows from the Appalachian Basin to the Gulf Coast, driven by booming liquefied natural gas (LNG) exports. U.S. LNG exports are expected to more than double from 4.4 trillion cubic feet in 2024 to 9.8 trillion by 2037.
Gas production in the Appalachian Basin is forecast to grow from 12.6 trillion cubic feet in 2024 to 19.6 trillion by 2050, due to lower costs. Conversely, production in areas like the Permian Basin and Gulf Coast is expected to decline by about 3.3 trillion cubic feet by 2050, as oil production slows and drilling becomes more expensive. The primary U.S. natural gas price, the Henry Hub, is projected to rise from $2.19 per unit in 2024 to $4.80 by 2050. A wider price difference between East Coast and Gulf Coast gas will likely drive more pipeline construction.
