Crude Price Hitching A Ride With Artemis?

Good morning!

Happy Friday! Well, petroleum commodity prices must be watching the Artemis launch to the moon with hopes of hitching a ride.  From July 4th until about last week, petroleum products were enjoying a nice downward trend into a manageable price range.  There was a palpable exhale in the air over the last month.  Moods of consumers were improving.  Farmers were optimistic.  And the markets were happy to see another sign that inflation was easing and lower-cost energy could soften the recessionary blow.  Wow…what a difference a week makes.  OPEC+ announced this week that they will support Saudi Arabia in cutting production, if necessary, to keep prices high.  The announcement came on the heels of a potential deal on the Iran Nuclear Accord, which Saudi Arabia is definitely opposed.  The markets went into full panic mode and crude prices shot higher.  The news was a definite blow to the Biden Administration in hopes that Saudi Arabia would help keep prices lower going into winter.  Saudi Arabia does not approve of Iran bringing 2M barrels/day back into the market and poaching Saudi customers.  However, the world NEEDS an addition 2M barrels/day of crude oil going into the winter.  Right now, any additional spare capacity in the market has come from the US selling their Strategic Petroleum Reserves.  The US has depleted 50% of the SPR and is now back at 1980’s levels.  The sale of the SPR ends in October, just as the world desperately needs more oil for winter.  The Iran deal was meant to plug the deficit after the SPR sale stops.  If the Iran deal does not go through, and Saudi Arabia cuts production, I’m not sure the US has enough SPR capacity to keep markets stable.  The world is in a definite “stand-off” on crude oil right now.  The situation developed very quickly and clearly the negotiations taking place behind closed doors broke down and the markets were not prepared.  I’m not sure what to anticipate at this point.  The US Energy Secretary is calling to possibly cut back our record 11M bpd exports of petroleum products.  But the US has also promised Europe we would help them.  Biden and company are in big trouble and I’m not sure how this situation will play out.  Regardless, US consumers are going to pay through the roof on heating bills this year for electricity, natural gas, and fuel oil.  Propane has escaped the same trajectory higher in price due to known upper bound limits on exports and better ability to forecast.  Although propane prices could blow out higher, most consumers are better price protected with future contracting.  I truly believe that the US consumer will be drained of excess cash due to heating/electricity bills over the next eight months.  Unless we have a silver bullet that pops the crude market, I see a hurricane disaster that popped up out of nowhere on the horizon.

In local news, prices of gasoline have stabilized but diesel prices have blown out to almost $1.50/gallon more in cost compared to gasoline!  I have never seen the spread that wide in cost between gasoline and diesel.  The Chicago market is incredibly tight going into harvest and spot cash markets are panicking.  Retail price on diesel will potentially go over $5/gallon again.  I’m hoping that maybe some of the ramping up in price is an end of month “short squeeze” due to refinery maintenance.  But we just won’t know until after Labor Day.

As I have been writing all summer, propane prices have been fairly stable and are providing an incredibly valuable opportunity.  The price of propane is relatively cheap compared to both natural gas and diesel.  If propane supplies become pinched this winter, a major blowout in higher prices is very possible.  Please take advantage of the current low prices and lock in some of your heating gallons for the upcoming winter.

As always, if you have any questions, comments, or concerns, please feel free to give us a call.

Best regards,

Jon Crawford

Crude Oil Living In The Bizarro World?

Good morning!

Crude oil traded in the “Bizarro World” this week.  Meaning, if you thought the price of crude oil would drop, the price instead went up.  And when all the data pointed to a price increase, the price decreased.  I felt like I was in the episode of Seinfeld “The Bizarro Jerry” where everyone meets their opposites in real life.  Almost every day this week, the crude oil market performed in the opposite direction of expectations.  And let me tell you from experience, it’s not fun hanging out with the “Bizarro Crude Oil Market!”  🙂  We went into the week on the news from Saudi Arabia that Aramco posted the largest ever quarterly profit.  Aramco announced they would be investing more than $20B of the profit into expanding capacity and improving crude oil refining downstream operations.  The markets sold off on the news as expected.  But then the rest of the week everything went bizarro.  Poor retail data from large American corporations: crude price went up…  Inventories of crude oil in the United States decreased according to the weekly report: crude price went down.  Housing data was awful and the FED looks to continue raising rates: crude price went up.  China announced a joint deal Russia and North Korea on crude supplies going forward:  crude prices went down.  All week long, the opposite of what was expected to happen occurred; very bizarro.  We will see how the week ends.  WTI price is looking to once again end up right about where it started for the week after living in “bizarro world.”

In local news, the price of gasoline and diesel in the Chicago spot market seems to have leveled off.  So I would expect to see the current average retail pump prices hold going into the weekend.  We are getting into the end of summer driving season, so all bets are off on the price of gasoline going into September.

Propane prices continue to hold steady.  The corn maturity data was released this week and most of the crop around the country looks to be in good shape compared to the five-year average.  If we continue to have warm weather in September with a little rain, the anticipated increase in corn drying demand compared to last year could end up being a dud.  If the corn drying season ends up being a “nothing burger”, then I would expect propane prices to continue their flatline trajectory into the holidays.  If you have not ordered a summer fill, please do so.  And we recommend contracting at least come of your propane gallons for the winter heating season.  There are still many volatile markers out there and it’s better to be safe than sorry.

As always, if you have any questions, comments, or concerns, please feel free to give us a call!

Best regards,

Jon Crawford

Crude Trade In A Dead Cat Bounce?

Good morning!

Happy Friday!  The update this week is based entirely on national issues.  There is not much to report on international news.  After weeks of falling crude prices, the crude oil trade found some legs this week.  WTI price is now moving back closer to $95/barrel.  The EIA had an interesting report showing gasoline demand higher than expected based on a large draw in inventory, but also showed a much larger build in crude oil and distillates.  Couple the supply data with the 8.5% CPI print and markets reacted with joy believing the worst is behind us and nothing but glory days ahead!  But as I have written before, the devil is in the details.  The drop in CPI inflationary data was mostly due to the drop in price of gas/diesel.  So a slight drop in CPI was expected in my opinion.  But our economy is not going to sustain at a 8.5% CPI.  And if crude prices rebound, 8.5% CPI will not continue to decline.  Also, refining utilization stayed strong.  And with the much larger increase in diesel inventories reported, basically refiners made more diesel than gas last week.  The decline in gasoline inventories was mostly due to less gasoline being refined, not demand, in my opinion.  I believe that markets react irrationally and therefore the WTI trade is possibly in a dead cat bounce right now.  I am not going to say that these prices are going to hold into the end of the year.  We are seeing gasoline demand back at 2020 levels which was the first summer in the pandemic!  Consumers are starting to change behavior.  The calls are basically now how deep of a recession will occur.  We are receding, but I chuckle that after this week’s data the markets react like everything is now perfect and back to normal!  The irrationality of the markets create opportunity and right now, it’s time to just sit back.  I really do believe the current rally is a head fake and we are experiencing a dead cat bounce after weeks of declining prices.

In local news, gasoline and diesel prices have bottomed.  You might even see prices at the pump go up next week.  Gasoline cost rose almost 20 cents per gallon this week and diesel cost rose over 30 cents per gallon!  The volatility remains very high in the spot refined markets.  Supplies are tight but manageable.  Once summer ends, the spot markets will get very interesting.  🙂

Propane prices rebounded this week a bit as well.  I am not excited about our national inventory levels.  Our exports are strong, Canadian supplies in the East are low, and our national levels are still below the five year average.  At the moment, propane price is also considerably cheap when comparing the value to diesel and natural gas.  So even if we have a low corn drying demand and warmer fall, I don’t see propane prices falling.  Basically, propane prices look to hold around current levels, but have incredible potential upside movement.  I highly recommend topping off your tank this summer and contracting at least some of your heating gallons for the upcoming winter.

As always, if you have any questions, comments, or concerns, please feel free to give us a call.

Best regards,

Jon Crawford

How Low Can You Go

Good morning!

Happy Friday!  Crude prices are starting to do “the limbo” game.  The bar continued to be lowered this week and traders kept passing through without touching.  As of today, WTI prices are now LOWER than when the war in Ukraine started.  WTI crude price is looking at closing below $90/barrel this week.  The crack spreads on gas and diesel have collapsed as demand erosion spreads across the US and Europe.  The fear of continued economic recession has gripped markets tightly.  In addition, a higher than expected jobs report today gave further fuel to the FED’s tightening policy.  For now, we expect interest rates to continue to trend higher. The backwardation curve on crude prices has falling even lower.  Citi Bank is now calling for WTI prices to collapse towards $65/barrel.  However, unlike market collapses in the past, most believe that OPEC+ will step in at $55/barrel and start production cuts to keep prices from falling below the minimum sustainable operations and profitability price point.  OPEC+ is also expected to announce a minimal increased production level beyond the agreed upon quota to appease Biden from his visit last month.  The unknowns at this point are hurricanes.  Hurricanes could actually cause massive price spikes over the next couple of months.  Even though crack spreads are falling, we are still one refinery shutdown away from going into deficit production.  Hurricanes are already more common this year compared to last year.  We’ve had three named storms already this season compared to only one last year at this time.  And last season was one of the most active storm season’s in 50 years.  For now, we can enjoy some relief on prices at the pump, but be prepared to jump higher if hurricanes take out the Gulf Coast production.

In local retail news, gasoline and diesel prices continue to trend lower.  In looking at the spot market collapse this week, I expect to see prices at the pump to go even lower next week.

Propane prices continue their stable trend of bouncing along the bottom of low prices.  However, propane inventory data from Canada was confirmed that supplies are 50% lower in the East compared to last year.  This means that if we have to rely on Eastern Canadian propane for a cold winter, prices will be very high.  I still recommend filling your tank now and locking in some gallons for the upcoming season.  Cost averaging is the best form of price protection.  Market timing in these volatile times is luck, not skill.  🙂

If you have any questions, comments, or concerns please feel free to give us a call.

Best regards,

Jon Crawford