Happy Friday!
WTI crude fell below $100/barrel this week and look to close beneath $95. We are starting to see technical levels in the crude trade, so any major event will push prices quickly back above $100 or below $90.
On Monday, oil collapsed below $100, dropping as far as $95 at one point in a sharp selloff. The UN met in New York this week, and Iran sent a delegation with the green light from both the president and the Supreme Leader to make a deal. The continued threat of Houthi attacks on Saudi Arabia remained real, but the Saudis have managed to keep cargo shipments moving. Diesel prices fell too, even after Ukraine struck another refinery near Moscow early Monday and knocking out half its capacity. US diesel prices remained at a record high above $6.50 a gallon, and all eyes are were the UN meetings this week.
On Tuesday, oil fell further and hit a two-week low. Ahead of Wednesday’s UN session, Iran said the Strait could fully reopen within seven days if the US Navy ends its blockade. Saudi Arabia announced its East-West pipeline was fully loading cargoes. The news was much-needed relief as crude oil prices were looking at firming back higher.
On Wednesday, oil bounced off the week’s low after Trump said late Tuesday at the UN that he wanted a deal with Iran or he would consider complete annihilation. The intensity of the statement spooked traders and repurchasing started to firm up the market. The US and Iran met for three hours. After steep overnight losses, crude and diesel rebounded at the open. In addition, Iraq announced that they are continuing to ramp up exports. By noon, though, gasoline and diesel prices completely collapsed. Even with the EIA reporting draws across crude and all refined products, the market is starting to believe the crude and diesel crunch could ease by year-end. Zelensky announced that he wants a winter arms deal with the US. And he understands that the US will likely ask Ukraine to stop bombing Russian refineries in exchange for the funding. However, the biggest news of the day sent markets into a tailspin. Reports surfaced that Trump was going to announce a 90-day diesel export ban. The announcement caused a knee-jerk reaction as traders heads spun in circles. The ban would put the US in uncharted territory. Refiners can sell diesel at the equivalent of $200 a barrel on the open world market. Europe is already cutting December flights over its diesel shortage and reliance on what little the US can spare Refiners are not going to lose money because of a ban. So while the knee-jerk reaction might be a pullback, I could see diesel prices eventually rebounding even higher.
On Thursday, crude and diesel screamed higher, then eased around midday on news that the US and Iran are continuing to work on a deal to reopen the Strait and end the naval blockade. I was surprised the market bought into the headline given these same announcements have come and gone for six months now. Diesel stayed the hot topic of the day, both in the news and at the UN. The US denied wanting a diesel export ban, but Energy Secretary Chris Wright said he’s in talks with oil companies about a partial pan. Diesel prices worldwide rocketed higher on that news again, because any ban would further tighten world supply. Although there was some good supply news. Saudi Arabia sold almost 100 million barrels to Asia for October and November delivery and plans to move some through the Strait despite the risk.
On Friday, oil drifted lower again as hopes for an Iran deal continued to take the lead. Strangely, crude oil prices did not move higher on the news that Saudi Arabia is preparing troops for strikes on the Houthis in Yemen. Saudi is backed by its newly formed alliance with Turkey and Pakistan. Ukraine struck yet another refinery Thursday evening, but traders are holding onto hope that an arms deal with Ukraine gets done in exchange for it ceasing refinery attacks.
The Chicago spot market collapsed exactly as I expected. Once Mobil Joliet and BP Whiting both came back online at full strength, basis differentials fell through the floor. The prompt trading month in Chicago rolled to November on Friday. There’s a bit of support for diesel prices on the November contract, but I expect diesel prices at the pump to keep declining through the weekend and into next week as inventories rebuild. Gasoline prices came down too, just not as much. However, I do believe prices of gasoline will move a bit lower at the pump.
Propane prices continue to firm up, moving higher again this week. There is a chance of another move higher in early October as winter demand and corn drying season east of the Rockies start drawing down inventories. I don’t see a chance of any major blowout in price. But I do see a floor forming in the market. A $10 drop in crude could bring some relief on propane price. For now, though, I think we’re settling into the new price norm.
As always, if you have any questions please feel free to give us a call. Have a great weekend!
Best regards,
Jon Crawford