Monthly Archives: February 2024

Not Much Out There This Week

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Good morning!

Happy Friday! The news cycle was fairly slow and uneventful this week regarding crude oil. Crude oil prices traded in a very narrow range all week. Most of the issues discussed were geopolitical instead of supply/demand. Ukraine suffered a setback this week with the loss of Avdiivka. The Western Nations and the UN are struggling to come up with a plan for continued Ukrainian funding. Russia, in addition to the victory this week, announced that they were considering putting a nuclear weapon in space to take out other countries’ satellites. The US and many other countries vehemently oppose any such action from Russia. Also, Alexei Navalny died in a Russian prison this week, along with another Russian war defector. The incident forced the United States to place further sanctions on Russia. In the MIddle East, not much has changed. Israel refuses to negotiate a peace deal that does not include releasing all Israeli hostages. The US, Egypt, and others have desperately been trying to force Israel to the table. The US blocked a ceasefire resolution in the UN this week because there was no provision forcing the full release of Israeli hostages, and the deal also included the release of Iranian backed prisoners. Israel continued to beat the drums that they will invade on March 10th. About 1.5M refugees will need to evacuate Gaza within about two weeks to avoid any potential conflict with the Israeli invasion. Hopefully a peace deal can be struck. There has been little progress between the US and the Houthis conflict in Yemen. Another ship was taken over by rebels this week. Although shipments through the corridor caused crude oil supply disruptions, those ships are now reaching Europe from around the Horn of Africa are easing some of the supply constraints. China also announced stop-gaps to control their collapsing stock market and real estate disaster. For now, the government programs seem to have maybe placed a floor under the crisis, but there is a long way to go before China is back to business as usual. The EIA reported another build in crude oil inventories, but draws on refined products. Due to some deep freezes in the south, a lot of crude harvesting was shut down. Most oil rigs are back online so we expect oil supply to be back at record levels soon. Exports remain very strong, especially with the shipping distance issue with the Red Sea in the Middle East. In addition, the FED speakers this week announced that a rate cut by June might still be too soon. Home Depot reported their 5th straight quarter decline in revenue. However, inflation is remaining a bit high. So possibly, the economy is showing signs of slowing, but the FED is adamant that they will not take the foot off the gas until inflation is tamed and steady. So overall, the push-and-pull of all the aforementioned issues placed equally downward and upward pressure on crude oil prices making the trade very narrow this past week. We will see what happens over the weekend and into next week as to how some of the current geopolitical issues start to play out.

In local news, the Bp Whiting refinery seems to be back to full operation next week. The announcement relieved a ton of supply pressure in the Midwest. Spot basis in the CME dropped back to normal levels offering some relief in prices. Therefore, we should start to see some retail prices at the pump go down a little. The worst of the supply issues seem to be behind us.

Propane prices rocketed higher to start the week and then fell a bit to end the week. The tug-of-war with propane is based on high crude prices high, low demand in the US, but record exports. Due to record exports, national propane inventories are now at/below the 5 year average even with record low demand in the US. Whereas back in November, propane inventories were above the 10 year average! Exports are going to be very high for the remainder of the year. So for right now, it’s hard to tell where propane prices will head this summer.

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

Best regards,

Jon Crawford

US Oil Cartel?

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Good morning!

Happy Friday! This week was dominated by news of escalating situations in the Middle East and Ukraine. Israel rejected all options for a ceasefire in Gaza and decided to invade Rafah. Rafah is home to millions of displaced Palestinians. Israel told all Palestinians at the start of the war to evacuate to Rafah when the war began. Now Israel is giving a limited time for the Palestinians in Rafah to evacuate before Israel invades the entire Gaza strip. The US denounced Israel’s plans.  However, the US is continuing to supply Israel with weapons. Netanyahu is not communicating at all with Biden. The lack of communication is causing much anger and frustration inside the Biden administration. There could be a call to stop sending Israel weapons before the invasion of Rafah. Stopping the sale of weapons to Israel would be the first instance where the US denies military support to Israel. Egypt has built an 8 square mile concrete containment wall to hold Palestinians if they should flood the Egyptian border. The increased tensions have pushed Iran to increase their weapons exports to all their proxies fighting on their behalf in the Middle East. There has been no progress with the Houthi situation in Yemen, and in Lebanon, reports are coming in that chemical weapons might have been used by Lebanon against Hezbollah. The inquiry is looking into the truth of the claim, as well as if the weapons came from the US. In Ukraine, Russia launched a supersonic missile that breaks through all lines of defense. The US did not believe that Russia had such capabilities. Therefore, the threat of increased powerful strikes on Ukraine are increasing. In addition, Russia is now hiring Cubans to fight in Ukraine and Russia is exploring placing missiles in space to attack adversaries’ satellites. In crude oil economics news, the IEA is calling for a balanced year in the crude oil market for the remainder of the year. Although supplies have been ample, the amount of increased crude oil demand around the world was cut in half due to the collapsing economy in China and a potential for US recession.  OPEC+ responded saying that demand around the globe will increase beyond production and crude oil supplies will go into deficit. Even though Iraq and Kazakhstan have continued to produce crude oil beyond quotas, Saudi Arabia believes that the robust world demand will dominate supply production. JP Morgan/Chase echoed Saudis’ response and also believes that tensions in the Middle East will escate causing further crude oil supply disruption. In a surprise move this week, oil producing companies in the US all reported that they will cut production to try and boost price and return money to shareholders. The announcements seemed to be very calculated in tandem raising eyebrows that US oil companies are working together to prop up oil prices. The news came on the heels of massive builds in US crude oil inventories reported by the EIA this week. The announcements seemed to try and pour cold water on the bears in the crude market and keep WTI crude oil prices stable. The markets took the news as bullish, but as I like to say, the devil is in the details. Even though all major oil companies in the Permian basin said that they would cut production, the largest companies still only make up just a bit over 50% of all the oil produced in the Permian basin. Therefore, wildcatters are still strong in the Permian Basin. And as long as there is an appetite for crude oil on the open world market, those companies will pump and sell. Taking a 20k foot view, I still believe that WTI is going to trade in the $70-80/barrel price based on economics. Black Swan events to the down or upside will depend on the the situation in the Middle East and Russia, as well as potential economic recession in China and the US. In addition to all the crude oil supply news, the Fed data released this week showed that inflation for December went up, and the initial inflationary reports for January showed an increase in inflation as well.  But even the possibility of a stronger dollar for longer didn’t move crude oil prices lower as is the norm when such events take place.  For now, I see stability in the market so it’s wait and see what will happen next.

In the local markets, Chicago basis finally balanced versus the Group.  The supply shock from the Whiting refinery shutdown seems to be contained. Prices of gasoline and diesel have peaked, so therefore there should be no more upside movement on prices of gasoline and diesel at the pump.

Propane prices followed crude oil prices higher and even climbed higher on days that crude oil prices dropped. Exports of propane continue to be greater than expected and national inventories are falling below the 10 year average. March looks to be colder than normal. Propane prices are well supported in the present moment. If crude oil prices stay high, and propane inventores finish the season closer to the five year average, we might not experience very low summer fill prices. Time will tell and a lot of potential change in propane price is in the hands of mother nature.

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

Best regards,

Jon Crawford

Bulls Gained Momentum, But Is The Rally For Real?

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Happy Friday!

This week crude oil news cycle was not as spicy as last week. 🙂 Crude oil prices started the week moving lower and continued through Wednesday. China’s stock market rout continued this week and consumer prices dropped again for the 16th straight month. The news pushed the bears along believing that Chinese crude oil demand will decrease this year. Then on Tuesday and Wednesday a few popular FED governors spoke and threw cold water on March rate cuts occuring, and also reported possibly only two to three rate cuts for the entire year. As usual, when the dollar stays strong, crude oil prices start to drop because crude oil is traded in dollars. In addition, on Wednesday, crude oil inventories in the US increased during the week prior, even though production and exports remained at record highs. The increase in stockpile coupled with the FED’s cold water on March cuts, pushed crude prices even lower. Then at the end of day Wednesday crude oil prices started to recover as the US reported killing the Iraq militant who planned the attack on the US base in Syria. As crude oil prices started to rally, the top general in Ukraine spoke out against continuing the war with Russia. Ukraine is reporting heavy loses of ammunition and the US has been unable to pass additional funding for Ukraine. Then in after hours trading, Hamas offered a ceasefire deal to Israel. Crude oil futures flattened out on a possible peace deal in the Middle East. However, we woke up on Thursday to Israel rejecting the peace deal, and Zelensky firing his top general. The news pushed WTI crude oil price past $75/barrel for the first time in a few weeks.  In two weeks, OPEC+ is having their meeting. Right now Iraq and UAE are both pumping 100k bbd of crude oil over their quotas. The meeting will all hang on Saudi Arabia’s decision. The market is pricing in that Saudi Arabia will continue their status quo. However, if Saudi Arabia decides to increase production, crude oil prices will probably collapse.  But a world-wide market share competition did not go well for Saudi Arabia last time, so I’m placing my chips on the bet that Saudi Arabia stays the course.  The week ended with the US government reporting an adjusted increase to CORE inflating in November and confirmed December’s inflation number.  The release gave further support for the FED to keep rates higher for longer.  Therefore, higher rates support crude oil prices.  Crude oil prices finished higher this week for the first time in a few weeks.  In addition, WTI crude oil price finished above the psychological support price of $75/barrel.

In local news, gasoline and diesel spot prices continue to run at much higher prices due to the BP Whiting refinery being down. From the rumblings on the ground, the refinery could take 2-4 weeks to be fully operational again. So until the refinery is fully operational and delivering refined products into the market, be prepared to pay higher prices for both gasoline and diesel at the pump. Once the refinery is good to go for a bit, our local market should hopefully drop in price and offer some relief.

Propane prices have followed crude oil prices higher this week. Even though January was officially the warmest January on record, propane exports are at record highs. Our national inventories are now at the 10 year average with the warmest winter on record. Remember, we started the heating season with the top-10 ever highest volume of propane inventory in US history! So for propane inventories falling to 10-year averages even though we are experiencing a possible warmest winter on record, the appetite for propane exports is not slowing down. I expect propane to trade in tandem with crude for the coming months. I also am not seeing where retail prices will drop below $1/gallon this summer. Summer fills could possibly even be higher than today’s price if crude oil prices remain high throughout summer and exports limit the amount of propane inventory building needed for next winter. So far now, it’s a wait and see.

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

Best regards,

Jon Crawford

Ships Passing In The Foggy Night

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Good morning!

Happy Friday! The crude oil trade this week was very foggy with bears and bulls passing each other multiple times in the night. There were no major collisions, but the ships are moving closer together. First up was the foggy reports on China’s economic activity. Evergrande, the largest Chinese Commercial Real Estate Group, was forced to liquidate due to a court ruling in Hong Kong. The ruling sent waves through the world markets as many investors were from countries outside of China. China responded by injecting more cash into their economy and lowering interest rates. The news was a pile on to the fears that China’s economy is slowing and therefore will decrease their crude oil consumption. All of the activity in China weighed on crude oil markets and prices began to fall. Secondly, the US announced that they have a plan to retaliate against Iran for their drone strike that killed three American soldiers over the weekend. Iran pleaded with the US that diplomacy would be a better option. The US denounced the possibility of having any discussion and instead heavily struck the Houthis in Yemen. The retaliatory strikes form the US against Iran did not happen this week, but time will tell. The news gave support to higher crude oil prices due the potential fog of further war in the Middle East. Thirdly, on Wednesday the US EIA reported a build in crude oil inventories. Industry experts were expecting a decline in inventories due to the Red Sea disruption. Europe began placing more orders for crude oil from the US and Brazil due to the freight arbitrage between Middle Eastern countries having to sail around the horn of Africa instead of going directly through the Red Sea corridor. Fourthly, the Fed spoke and said that interest rate cuts are on the table, but a rate cut in March was probably not going to happen. The news caused fog to spread throughout the markets. Traders continued to price in the rate cut for March causing crude oil prices to fall due to the potential of a weaker dollar. Even though all the news on Wednesday wasd bullish, the bear traders pushed their ships straight ahead and passed the ship of the bulls in the night. Fifthly, on Thursday Canada announced approval of an east to west coast crude oil pipeline that will give Canada access to exportation of their 4.1M barrel/day crude production into the world market. As of today, 100% of Canadian crude goes to the US. The US has all the leverage for negotiating prices with Canada because Canada has nowhere else to go with their crude. In the past ten years, I’ve pushed and lobbied that the US should have found a way to run the Canadian crude through a US pipeline to the Gulf Coast. Now I know the Keystone pipeline was very controversial and not needed for US energy security. However, the US would have been able to control Canadian exports, which in turn would have given the US leverage to negotiate crude purchases from Canada. Instead, the US gambled that Canada would never be able to pass legislation allowing a crude oil pipeline to be built throughout the country to the west coast. Well, Canada was able to accomplish the impossible. With Canada having access to the open crude oil market, the East of Rockies refiners in the US will now be forced to find new crude imports from other countries. Or US refiners will be more dependent on local crude oil producers. Regardless, the actions from Canada this week could bring downward pressure on world crude oil prices because Canada can cut direct deals with Japan, Singapore, and China. However, even though crude oil prices could experience downward pressure, the US crack spreads on crude East of Rockies will increase dramatically causing the price of gasoline and diesel to increase. Sixly, the newswires announced that a potential long-term ceasefire is on the table in Gaza. The news caused a sell-off in crude prices due to the potential of turning down the temperature in the Middle East and avoiding an escalation of conflict in the region. Seventhly, Saudi Arabia reported a downturn in their economy due to revenue losses from lower crude oil exports. Therefore, a potential for Saudi Arabia to possibly increase production or offer discounts on crude oil prices to increase revenues is on the table for the first time in years. And lastly, today the government released jobs data which new jobs added as well as the unemployment rate. Job hirings increased at a greater pace than expected, even though firings increased. And in addition, surprisingly the unemployment rate dropped. The traders aboard the bears’ ship passed the bull’s ship again and WTI crude prices collapsed this morning. The drop has spooked a lot of traders to change position on a March FED rate cut. Therefore, if rates stay higher for longer, crude oil prices should continue to experience downward pressure from a stronger dollar. In conclusion, a LOT of data was released this week. Crude oil prices will report a loss for the week. Even though the data is extremely foggy, the trader’s on the bears’ ship passed by the bulls without any accident. A potential for crude oil prices to drop below $70/barrel is back on the table.

In local news, Chicago spot market prices skyrocketed yesterday due to Bp’s Whiting refinery going offline. The Whiting refinery is the largest refinery East of the Rockies refining about 500k barrels of crude oil per day. Bp is not releasing much information other than a possible power outage. The bad news, is that refineries can take anywhere from 5-14 days to regain full production. Therefore, I expect to see retail prices at the pump for both gasoline and diesel increase in the coming weeks. However, the increase in price could be short lived.

Propane prices increased this week even though crude oil prices dropped. On Wednesday, the EIA reported a second straight week of massive drawdowns in national propane inventories. The drawdown comes on the back of cold weather and massive exports. EVen though temperatures are looking to be warm in the coming weeks, I do not see propane prices dropping considerably. The appetite from Europe for propane exports is extremely robust due to the Red Sea conflict and the inability to purchase cheaper propane from Saudi Arabia. Even though the weather looks to be warmer, I always like to remind our customers to keep their driveways clean and have a clear path to their propane tank in order to ensure a safe and efficient delivery.

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

Best regards,

Jon Crawford