I hope this message finds you all well. Over the last week, OPEC has continued to promise that they will work together to draw down the glut of crude across the globe. These statements are feeding the floor of $50/barrel set for WTI. However, the U.S. is continuing to export record amounts of crude oil. As long as the exports of crude from the U.S. continue to be strong and the spread between WTI and Brent remain large, OPEC will have to extend cuts in order to draw down global inventories. Without a major demand increase event, I don’t see much more upside left in WTI this year. The only major geopolitical event sizzling out there is the Northern Iraq conflict with the Kurds over the control of the oil fields and pipeline feeding Turkey. If this conflict escalates into civil war, we could see a bump up in crude prices across the board. In addition, at these current prices speculators have now made money on the WTI trade, so as we go into the end of the year some speculators might exit positions and cash out knowing that their starting base price for next year is already at a potential peak with not a lot of upside potential. In addition, demand tends to decrease going into winter causing another headwind for crude prices.
In local news, the November contract reference month finally expired at the Chicago exchange, and spot prices fell accordingly as I predicted. I still see about 10-15 cents of inflated spot pricing on both gas and diesel out of the Chicago exchange. So I would expect to see retail prices start to ease going towards Thanksgiving as long as some major supply or geopolitical issue doesn’t surprise the crude market. Gasoline prices are averaging around $2.37/gallon in the area and diesel is averaging around $2.75/gallon.
Propane has found some temporary support with corn drying demand and some colder weather. Delivered prices are now again at a new high for the year. However, at these prices, manufacturing could possibly start switching to different chemicals for production giving some potential relief to the current propane price. For now, I am thinking we could see some lower prices on propane towards Thanksgiving, but higher again into winter. If WTI crude falls back below $50/barrel, we could also see some relief on propane price. But WTI will have to fall at least $3/barrel in order for that to occur.
As always, if you have any questions, comments, or concerns, please feel free to give us a call!
Jon Crawford – Pres.
Crawford Oil and Propane