Monthly Archives: October 2023

Crude Oil Tug of War

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Good morning!

Happy Friday! Well, again the tug of war on crude oil prices continued this week. WTI prices dropped from $90/barrel back down below $85/barrel and looking to move closer to $80/barrel. As I have been writing, I believe that WTI crude oil prices will trade in the $80-90/barrel range. The war between Israel and Hamas doesn’t seem to be throwing as much fear into the markets this week compared to last week. In addition, the US launched air strikes into Syria last night putting the US officially in the middle of the conflict. Even the strikes from last night did not cause crude oil prices to climb much higher. The big news of the week was that the US reported the highest GDP growth at 4.9% in the third quarter. Most would think that the report is great news of a healthy growing economy, but the devil is in the details. As the consumer looks to run out of cash going into the high spending time of the holidays, most large banks are now convinced the GDP bubble will burst. If the economy moves into recession, crude demand could drop. In addition, a recession in the US could cause contagion to other parts of the world. Therefore, the futures bears won this week on the crude oil trade. Throughout all the chaos, there was some positive news between China and the US. Xi Jinping met with a couple of US Senators and US Secretary of State Blinken expressing that there are thousands of reasons for the US to come together rather than grow apart. The willingness from Xi Jinping to push for reconciliation is a dramatic shift in China policy. Many believe that a summit between Biden and Xi will occur sooner than later. If the US and China are able to strike some trade deals that are transparent and manageable, then I believe China will inject cash bailouts into their failing real estate market. If everything falls into place between China and the US, the cooling tensions could spark a boost to both economies. A boost to both economies would cause an increased appetite for crude oil. Time will tell and we will see what happens next week. As of now, we are truly living on a week-by-week basis with the crude oil trade. There is so much volatility all over the world, and I don’t see situations calming anytime soon.

In local news, diesel cost has come down from their highs following lower crude oil prices. The spread in diesel cost between the Group and Chicago spot markets has settled down. Diesel supplies are starting to loosen up as harvest moves over the hump to the west. Gasoline prices have dropped as well following lower crude oil prices.

Propane price has remained fairly flat and moving a bit higher as winter economics continue to drive the vehicle. With an early cold snap on the horizon, I expect propane prices to remain firm independent from crude oil prices. You can still lock in your propane price for winter if you have not done so already.

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

Best regards,

Jon Crawford

Risk Premium With Crude Oil Prices Continuing To Increase

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Happy Friday!

I hope this email finds everyone well. Unfortunately, the Israel/Palestine conflict is looking to turn into a war as Hezbollah and the Houthis both entered the fight this week. Saudi Arabia and the UAE are meeting for the first time in years to discuss how to make sure the war does not escalate across the entire Middle East. The King of Jordan cancelled his meeting with President Biden while Biden was in mid-flight to Israel. Jordan is looking to other countries for a security strategy. The UK Prime Minister also visited the region this week. Iran continues to fund Hamas according to almost all accounts across the globe. And now that Hezbollah and the Houthis made their voices heard, the Gaza Strip is a powder keg waiting to fully explode and possibly spread across the Middle East. Although economic data in China and the US was very weak, the dollar continued to climb as Fed Chairman Powell said that a rate pause is on the table, but another raise is possible if inflation continues. Treasury yields broke through 5% this week. Americans surveyed this week are saying they are now cutting back on discretionary spending. This coming Christmas season will be very telling for economic predictions in 2024. Home mortgage averages hit 8% for the first time in decades. Oh, and Russia moved nuclear weapons into Belarus this week. We can’t forget that Russia and Ukraine are still at war. China’s power of influence over their Belt and Road initiative hit a setback this week as most of Europe and other countries sat out of the Summit. Overall, China and the US are losing major influence as super-powers across the globe. There are trust issues and economic issues that are scaring many of their friends to distance themselves from both countries. All-in-all, the data from the week sent WTI to $90/barrel. If we close above $90/barrel, I believe that $100/barrel WTI crude oil is on the table by year end. Especially if the conflict in the Middle East continues to escalate.

In local news, the cost of diesel for our neighbors to the east (Minnesota, Iowa, etc) on Group spot pricing rose to $1.25/gal HIGHER than the Chicago spot market! Diesel supplies are extremely tight in the Group, and I believe eventually the shortage will spill over into the Chicago market as harvest picks up steam all over the Midwest. Right now, diesel prices are like the Wild West. So much volatility and no predictability. We are living in a day-to-day environment. Gasoline prices rose with the price of crude oil this week, but supplies seem to be in ok shape heading into end of year.

Propane cost rose a bit this week along with crude oil price increases. I could see retail propane prices potentially increasing in November if crude oil moves higher in price and cold weather demand starts to kick in. Supplies of propane are in very good shape compared to years past. Therefore, any fears of a shortage are low risk this winter.

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

Best regards,

Jon Crawford

Risk Back On And The Bulls Are Running

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Good morning,

Happy Friday! This week was completely focused on the largett attack from Hamas on Israel in 50 years. The response from Israel is sending shockwaves through the markets as the world braces for a potential full invasion of the Gaza Strip by Israel. A full invasion would be a humanitarian crisis. In addition, Iran has offered support to Hamas and Saudi Arabia is panicking. Not too long ago, Saudi Arabia was looking to be a possible peace broker along with China, between Israel and Palestine. Now Saudi Arabia is stuck in the middle. The US responded this week by freezing nearly $6B in oil payments to Iran from UAE. In addition, the US placed further sanctions on Russia for violating the terms of the oil price cap with the G7. China is also opening up sovereign wealth fund to buoy the commercial real estate disaster in the country. Also, the FED minutes from last month’s meeting seem to say that rates will hold higher for longer. Many believed this would would lower crude prices. However, producers are being very vigilant in keeping production quotas tight around the world to support higher oil prices. But the biggest driver of the bulls this week is the conflict in the Gaza Strip. Many are now worried that the conflict will spill over to many other countries, including those in the Middle East that would affect oil production. The US moved an aircraft carrier into the region and Saudi Arabia announced that they would increase production if needed to keep oil prices under control. As of today, WTI oil price has it’s eyes on $90/barrel when just last week the price was about to fall through the floor of $80/barrel. If traders start to take some risk with long positions leading into the end of the year, I believe that $100/barrel WTI crude oil could be possible. For now, we are hoping for a miracle that could de-escalate the potential for a disastrous humanitarian crises in Israel and Palestine.

In local markets, gasoline prices continue to trade in a narrow range but have slowly started to climb higher again. After diesel prices collapsed last week, diesel prices are recovering this week and seem to have carved out a bottom for the time being. As harvest goes into full speed ahead along with the conflict in the Middle East, I believe that prices in our market will be be supported and start to move higher.

Propane prices have not moved around too much the past week. As I’ve stated before, propane producers are drawing a line in the sand going into the winter months that they will just not produce propane for much cheaper than the price of today. As interest rates stay higher for longer and the prediction of a warmer winter, propane producers are hesitant to move the floor price. However, if crude prices start to rocket higher, propane price will follow.

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

Best regards,

Jon Crawford

The Bears Had Breakfast, Lunch, and Dinner This Week

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Good morning!

Happy Friday! Crude Oil prices fell off of a cliff this week. Crude oil prices just got hammered on fears of recession and betting that the jobs report today would be awful. Not only was the jobs report MUCH stronger than predicted, but nothing changed in market fundamentals surrounding crude oil. OPEC decided to keep deep cuts in place until the end of the year. The US crude oil inventory continued to draw down this week. President Biden is probably going to meet with Xi Jinping to try and heal relationships with China. And the US consumer seems to be in better shape that previously reported. Many banks came out this week with bearish sentiment for crude oil out of left field. The majority of the drop in price was due to options being liquidated on the market and then causing contagion. When statements from banks turn bearish and prices fall, usually this means that banks are liquidating their positions and looking to buy back in at lower numbers. Crude oil hitting $100/barrel started to look unattainable by year end, so the banks did their old “switch-a-roo” and traders outside fell for it hook, line, and sinker. Although spot prices collapsed, WTI has yet to fall through $80/barrel. I have been calling a hard floor at $80/barrel. We need to remember there is still a war going on and economic growth continues to accelerate in countries like India and Vietnam. Once again, all economic situations remained neutral this week. The only changes were the statements being made by banks and the news running with the stories all over the airwaves. As a reminder, the market can be very irrational. Volatility is in full-swing right now.

The price of diesel and gasoline collapsed in our spot market as well. However, the differential spread between the Group Spot and Chicago Spot remains at 50+ cents/gallon for diesel! The Group Spot is more in-line with the NYMEX, so I still believe it’s not a matter of “if”, but a matter of “when” Chicago Spot price on diesel jumps dramatically higher.

Propane price continues to slowly follow crude oil prices. Now that we are into winter economics, producers are reluctant to give too much back on dips because demand is fairly weak right now. I believe propane will take back all the pricing it gave away this week if crude prices go back up. Inventories remain healthy but exports could stay at record levels if business deals are cut with China, India, and Vietnam.

If you are a business, I also wanted to mention that there are rebates for installing certain appliances and machinery with propane as the source of fuel. https://focusonenergy.com/business/propane

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

Best regards,

Jon Crawford