Happy Friday!
WTI crude oil is looking to end the week below $60 per barrel, marking the second consecutive weekly drop. After briefly finding support midweek, prices slipped again as traders refocused on oversupply and soft economic data.
The war in Ukraine remains intense. Russia has gone on the offensive, targeting the city of Pokrovsk, a key transport and logistics hub for Ukraine. In retaliation, Ukraine struck a Lukoil refinery, escalating damage to Russian oil infrastructure and sparking a brief price rally on Thursday. But as the dust settled, traders shrugged off the event, believing Russia will eventually reroute its barrels somewhere. Russian exports continue to slide under sanctions, and crude is piling up on tankers across the Asia-Pacific region. Turkey’s decision to scale back Russian purchases has only added to the pressure. A large amount of Russian oil now sits on ships waiting for a home, and if sanctions are ever lifted, a wave of barrels could flood the market. Meanwhile, Venezuela continues to face political uncertainty. Hints of regime change could eventually open its oil market to more exports, adding to global oversupply. For now, Venezuelan shipments are falling, with most barrels still heading to China.
OPEC announced a small production increase, far less than prior moves, and confirmed there will be no new output hikes in the first quarter as global inventories continue to rise. Analysts now estimate a global surplus ranging anywhere from 200,000 to 3 million barrels per day next year. Overall, OPEC’s total output rose in October, reinforcing the oversupply story. Traders digested the decision quickly and kept bearish sentiment in place. Saudi Arabia continues to chase market share, cutting its official selling prices to the lowest level in eleven months.
Adding to the glut, China’s manufacturing activity shrank again in October, marking six straight months of contraction. Export orders also fell at the fastest pace since May. China is simultaneously increasing domestic drilling to reduce import dependence, which ultimately adds more crude to the global market. India has also joined the ranks of secondary sellers, re-exporting Russian barrels and building up inventories at home.
On Wednesday, WTI fell below the $60 floor as U.S. inventories climbed, according to the latest EIA report. The ongoing government shutdown is adding more downward pressure to sentiment. On the economic front, 42,000 U.S. jobs were added last month, signaling a still-healthy labor market. That strength makes it less likely the Fed will cut rates in December, keeping the dollar strong and commodities cheaper. Meanwhile, U.S. manufacturing contracted for the eighth straight month, which supports a bearish case for crude demand. Market watchers also noted that the “Buffett Indicator,” which measures total stock market value against GDP, has crossed the 2.0 mark. The last time this occurred was in 2001, just before the market collapse. If equity markets were to correct sharply, it could spill into commodities and potentially trigger a “black swan” event for crude if the current surplus expands into early next year.
The Chicago spot market remains an absolute mess. The Westshore Pipeline, which supplies Wisconsin with refined products from Chicago, continues to be shut down. The outage has caused widespread shortages at terminals across south-central Wisconsin. Thankfully, the harvest season is wrapping up, but diesel and gasoline prices have been extremely volatile, with massive intraday swings. Predicting retail prices right now is nearly impossible—most buyers are simply taking whatever diesel they can find. Resupply is expected to improve next week as product starts flowing from both the southern and northern systems, which have also been on allocation for over a month. This 15-day stretch has been one of the wildest supply crises in the region in nearly a decade.
Propane continues to hover near the lower end of its trading range. Inventories built again last week as crop-drying demand tapered off, but colder weather is on the way. Forecasts are calling for a deep freeze across the Midwest over the next 7–10 days, which should quickly draw down national inventories and lend more support to prices. Despite record storage levels, propane remains well-positioned to firm up once winter demand kicks into high gear.
As always, if you have any questions, please don’t hesitate to give us a call. Have a great weekend!
Best regards,
Jon Crawford