Monthly Archives: May 2024

OPEC+ Meeting and Possible Slowing Demand

Posted on by

Happy Friday!

Crude prices ended the week lower compared to last week. OPEC+ will be meeting on June 2nd to discuss production quotas going into summer. According to their projections, global oil demand is expected to increase by approximately 2.25 million barrels per day (bpd) in 2024, driven by a strengthening Chinese economy and robust demand from other non-OECD countries. This growth in demand is anticipated to outpace the rise in non-OPEC supply, positioning OPEC to play a crucial role in balancing the market and influencing prices​. OPEC also predicts that the call on its crude oil—the amount needed to balance global supply and demand—will be significantly higher than current production levels. The organization estimates this demand to be around 28.49 million bpd in 2024, compared to their December 2023 output of 26.7 million bpd. This indicates that OPEC’s supply cuts and production strategies will be critical in maintaining market stability and supporting higher prices. Furthermore, despite the possibility of an economic slowdown in the U.S., China, and Europe, OPEC maintains an optimistic view. They expect that ongoing geopolitical tensions, potential supply disruptions, and strategic production cuts will help sustain oil prices. Additionally, any economic stimulus measures, such as Federal Reserve rate cuts, could provide further support by devaluing the U.S. dollar, which typically boosts oil prices. This week, the Ukraine war has seen several significant developments. Russian forces have intensified their attacks, including a missile strike on an apartment building in Kharkiv, resulting in at least four deaths. Another missile hit first responders shortly after the initial strike. Moscow has also launched attacks using ballistic missiles and drones on various Ukrainian targets​. Ukraine has launched drone strikes targeting Russian military infrastructure in Crimea. Kyiv’s forces claimed successful hits on the Kerch ferry crossing, causing significant damage​. The US and Germany have allowed Ukraine to use their supplied weapons to strike targets inside Russia. This decision has escalated tensions, with Russia warning that such actions could lead to a direct conflict with NATO​. Discussions about peace conferences continue, with China advocating for an inclusive peace summit recognized by both Russia and Ukraine. Meanwhile, European support for Ukraine remains strong, despite Russia’s criticism. Over the past week, the situation in Rafah has been marked by intense conflict and significant international response​. An Israeli airstrike on a displaced persons camp in Rafah killed at least 45 people and injured hundreds. The strike targeted Hamas officials but resulted in high civilian casualties, drawing widespread condemnation. Israeli Prime Minister Benjamin Netanyahu described the incident as a “tragic mistake” and the Israeli military pledged to investigate​. International leaders, including the UN Secretary-General and the European Union, have condemned the strike and called for adherence to international law. The Biden administration has also urged Israel to take all possible precautions to protect civilians during military operations​. However, the Biden administration has concluded that war crimes have not been committed according to the United States’ definition. Overall, geopolitical events remain very volatile. For now, we wait for the results of the OPEC+ meeting and go from there.

In local news, the EIA inventory report for last week released the following information. Crude Oil: 4.2M barrel draw / Gasoline: 2M build / Distillate: 2.5M build. The report was interpreted as bearish due to the increased inventories of finished products. Chicago continues to be over supplied with gasoline and diesel. Therefore, with the possibility of decreased demand, the Chicago Spot market sold-off again. I expect to see prices at the pump drop a bit next week.

In propane news, the EIA inventory report for last week released information showing a 2.1M barrel build. The build was lower than expectations and exports were at the 3rd highest volume ever reported in one week. Propane prices are continuing to firm up as national inventories have now fallen below last year’s levels at this same time of year. Next season’s heating contracts have been released. I highly recommend everyone topping off their tanks at the current value of propane compared to crude oil price.

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

Best regards,

Jon Crawford

Panning For Gold

Posted on by

Happy Friday!

I first would like to take a moment and wish everyone a safe Memorial Day weekend. I would also like to take a moment to remember all of our military veterans who sacrificed their lives in service to our country. Our freedom comes at a price. No matter how difficult the struggles can be in our country, we are still the best country in the world.

Crude oil prices finished the week lower than last week. The move lower was based on poor economic data, as well as sticky inflation. Existing home sales in America fell in April, even as more supply hit the market. The FED also announced that rate cuts are a ways off due to inflation levels possibly rising. Some banks, such as Goldman Sachs, have adjusted their outlook to “no rate hikes in 2024.” In fact, there is growing sentiment that a possibility of a rate increase is on the table. There were also weak economic data announcements from China as well as Europe. The potential for a global economic slowdown won over oil traders in the first three days of the week. But the last two days of the week were all bullish. OPEC+ meets on June 2nd and rumblings are forming that an extension and maybe further production cuts will be put in place to keep WTI crude oil price above $80/barrel. In geopolitical news, the war in Gaza intensified as Israel continued their offensive in Rafah. The United States and others again pleaded with Israel to provide more protections to civilians in Rafah. In a rare announcement, The International Criminal Court (ICC) issued arrest warrants for leaders from both Israel and Hamas, accusing them of war crimes and crimes against humanity linked to the ongoing conflict in Gaza. The warrants target Israeli Prime Minister Benjamin Netanyahu, Defense Minister Yoav Gallant, and Hamas leaders Yahya Sinwar, Mohammed Diab Ibrahim Al-Masri, and Ismail Haniyeh. Also, the International Court of Justice (ICJ) issued a ruling against Israel, calling for measures to prevent genocidal acts in Gaza. In other recent developments, Spain, Ireland, Norway, Malta, Belgium, and Slovenia formally announced their recognition of Palestinian statehood. This collective effort is part of a broader strategy to support a two-state solution and address the ongoing humanitarian crisis in Gaza. Israel vehemently pushed back on all of the previously stated announcements and vowed to continue their as is, regardless of Western support. The accord between the US and Saudi Arabia to put pressure on Israel seems to be dead. The King of Saudi Arabia is sick, so MBS is staying close to home and focused on family. The war in Ukraine also had some developments this week. Zelenskyy signed laws enabling prisoners to join the army and increased penalties for draft evaders. He has also called for more air defense systems and advanced fighter jets from allies to achieve air parity with Russia. Meanwhile, diplomatic tensions continued, with Russia criticizing upcoming peace talks and asserting its military actions aim to create a buffer zone​. Valerii Zaluzhnyi, the Commander-in-Chief of the Armed Forces of Ukraine, was dismissed from his position. President Zelenskyy made this decision as part of a significant military shake-up aimed at adapting Ukraine’s military strategy to current challenges and improving the effectiveness of the armed forces. In addition, Ukrainian Defense Minister Oleksiy Reznikov submitted his resignation. The move is part of broader changes in Ukraine’s defense leadership as the country continues to address the evolving dynamics of the war with Russia​. All-in-all, there seems to be no positive change in Ukraine. Russia continues to gain ground and Ukraine is running out of steam to fight back. The geopolitical tensions in Israel and Ukraine offer a sort of support-floor for crude oil price. The week finished with WTI crude prices rising. One of the largest reasons was Pres Biden announcing the release of 1M barrels of gasoline into the US supply chain in order to lower gasoline prices for summer. The move actually caused prices to rise. The announcement was clearly politically motivated and not in the interest of supporting gasoline supply. The release of refined products under an executive order sent shivers down the spines of oil traders. If a President is releasing refined barrels into the supply chain, the potential for a supply crunch due to refineries going offline is increased, not decreased. In addition, 1M barrels of gasoline is about 42M gallons of gasoline. Here’s the fact: the US consumes at lease 375M gallons of gasoline a day. Therefore, the release covers just over 10% of our gasoline consumption for one day. Clearly the move is politically motivated and not in the best interest of protecting our nation’s supply of refined fuels. The announcement continued to push prices higher through Friday as many traders are starting to believe that most people will travel by auto/truck this summer for vacation as opposed to airline travel due to high-priced airfare. The increase in gasoline/diesel consumption puts pressure on a very tight refinery market and continued record exports. If we lose any refineries throughout the summer, prices of gasoline and diesel will skyrocket. So for now, I would enjoy the lower prices at the pump. I do not see prices of gasoline dropping below $3/gallon as Biden is hoping to achieve.

In local news, the Chicago spot market seems to be well supplied with gasoline and diesel. There were a few spot hiccups this week due to possible covering of positions with the change in cycle timing. But the Chicago spot market is showing some reliance at the moment. Retail prices in our region might go down a bit compared to other parts of the US. Again, everything hangs on the continued strength of refining capacity. Any loss of refining capacity in Chicago our local prices for gasoline and diesel will take off.

Propane spot and futures pricing are starting to find support. Both prices finished higher to end the week. Although inventories are in great shape, the amount of gains per week is not hitting predictions. Therefore, again, with any production shortfalls, propane inventories could start to move sideways due to the massive amounts of exports. Next season’s heating contracts are out right now! I suggest signing up for a contract and filling your tank now. The retail price of propane is the lowest in over a year, and next season’s contract prices are lower than this past winter! Even with inflation hitting energy prices, propane contract pricing for 2024-25 is lower than 2023-24! What a great economic relief for customers!

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

Best regards,

Jon Crawford

Spaghetti At The Wall

Posted on by

Good afternoon!

Happy Friday! Well, the crude oil markets traded in a very range this week. WTI crude oil price fluctuated between $77/barrel and $79/barrel. WTI was looking to push through the $80/barrel support level, but just didn’t quite get the momentum….until today! On day close today, WTI price closed above $80/barrel for the first time in a month. Right now the majority of traders are still shorting WTI at $80/barrel. But if traders switch positions and go long at $80/barrel, WTI price will push through $80/barrel and probably move closer to $85/barrel. Seems like the traders are digesting a ton of spaghetti being thrown at the wall of the crude trade. There is plenty of news supporting higher prices, as well as some reports supporting lower prices. The support for higher prices includes Israel continuing their move on Rafah, along with the US sending another $1B in weaponry. Ukraine is receiving more weaponry for defense against RUssia. Russian petroleum exports have tightened due to Ukrainian attacks on refineries. China and Russia held a summit to solidify an alliance promising to resist all Western interference with trade as well occupation of territories close to both China and Russia. OPEC+ and others continue to call for increasing demand this summer that will slide crude oil inventories into deficit by year end. In bearish news, other agencies are calling for an economic slowdown in the US, China, and Europe. Any slowdown could put downward pressure on crude oil prices. However, FED cuts could provide support for higher prices due to the devaluation of the dollar. I am also convinced that no oil producer is going to let WTI price fall below $75/barrel. In addition, I believe Saudi Arabia and others will continue to implement supply cuts to prop up prices for the remainder of the year. Also, hurricane season and a presidential election are on the way! Get your popcorn and enjoy studying the spaghetti on the wall!

In local news, the Chicago spot market gave back a lot of spot basis this week. I expect to see retail prices on gasoline and diesel at the pump go up next week. I would suggest purchasing gasoline or diesel sooner than later. The Chicago spot basis is still 15 cents below our neighbors in the Group spot. Therefore, our Chicago market is still providing good value for gasoline and diesel prices.

Although crude prices traded narrowly, propane spot prices dropped a bit more but firmed up on the out months. Many suppliers are looking at a floor for futures saying they are unable to profit if the price gets much cheaper. What’s scary, is if that happens, producers will cut back on production. Right now inventories are healthy and we are experiencing a great balance between supply, demand, and exports. Spot price is holding great value and I recommend everyone filling their propane tank. Also, next season’s heating contract pricing will be available on Monday! Please call to setup your contract for the coming winter!

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

Best regards,

Jon Crawford

Slow Creeper

Posted on by

Good morning!

Happy Friday! The past week did not have as much news as the week prior. The big news of the week was Israel rejecting a ceasefire deal from the negotiating group in Qatar. Israel is adamant that the remaining members of Hamas must be eliminated from Rafah. Estimates believe that there are three battalions of Hamas left hiding in Rafah. Each battalion is around 1,000 members. Pres Biden responded to Israel’s rejection of a ceasefire by withholding further weapons to Israel until Israel can release a battle plan that limits civilian casualties. Israel cut off the main supply route to Rafah. However, the humanitarian bridge that was built in the Mediterranean Sea is now functional. Therefore, aid should start to flow into Rafah to help the 1M residents sheltering in place. The accord that Pres Biden pitched to Saudi Arabia is DOA if Israel invades Rafah. Israel resounded to the United States weapon withholding by saying they will “go it alone” into Rafah. Since Israel’s announcement, Israel started targeted bombings in Rafah and asked all southern residents to evacuate. The conflict in Ukraine/Russia escalated a bit as Ukraine started to receive more weaponry support. Russia is reporting oil production issues, but is having no problem finding customers. China and India continue to buy all of Russia’s exports. In economic news, world crude oil production continues to barely meet demand. OPEC+ and United States producers are being very disciplined with their production. They do not want the world supply of oil to go into surplus. In addition, EIA reported a draw in crude oil inventories on Wednesday. The FED also signaled that maybe rate cuts could come sooner than end of the year. Crude oil prices did not pop as expected with all the action in Israel/Gaza. Instead, crude oil prices slowly crept higher from their lowest price in almost a year. WTI Crude Oil price is BARELY holding below $80/barrel. I expect any escalation in the Middle East region or Ukraine/Russia will push WTI price back above $80/barrel.

In local news, the Chicago Spot market continues to be tight on gasoline supplies. Gasoline prices have dropped a little bit, but not as much as diesel prices. Diesel production remains high and surplus-supply is starting to develop. However, demand for diesel is picking up as farmers hit the fields and construction projects fire up around the Midwest. I expect to see little movement in spot prices of gasoline and diesel. The spot market will probably start to move in tandem with the price of crude oil. Diesel spot prices are holding incredible value. I highly recommend purchasing spot diesel at these current prices.

Propane spot prices dropped to their lowest price in over six months this week. But a floor of support seems to be developing. Just like spot price diesel, spot propane price is holding incredible value right now. I suggest considering purchasing spot propane at these current rates. Next season’s heating contracts should be out next week or the following. Stay tuned for more info.

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

Best regards,

Jon Crawford

Is The Repositioning For Real?

Posted on by

Good morning!

Happy Friday! There was a lot of data to unpack this week. Crude oil prices continued their slide. WTI crude price looks to close below $80/barrel for the first time in almost a year. The drop in price below $80/barrel forced a futures options trading repositioning of nearly 85% in the market. Almost every trader sold off their long positions and bought shorts. Although the data this week was interpreted as bearish, I continue to say that the drop in crude oil price is an incredible buying opportunity for the spot market. Starting the week, there was an announcement that Israel was going to negotiate with Hamas on a peace deal. The news caused commodities to drop in price. Many believe the deal will get done. A ceasefire would pull more geopolitical risk out of crude oil prices. However, when you dig into the details of the peace deal, I don’t see how the deal will get done. The details of the deal are as follows. Hamas is willing to release hostages in exchange for hundreds of Hamas POW’s being held by Israel. In addition, Israel would allow Hamas to exist with a recognized two-state solution. The framework seems DOA, but the markets love volatility. In addition to the potential ceasefire, the US announced a potentially very risky accord with Saudi Arabia. The US would provide Saudi Arabia with weapons and military support, and cut back on military support for Israel. And in return, Saudi Arabia would recognize Israel as an independent state in the Middle East and cut back on doing business with China. Also included is a clause that the US and Saudi Arabia will work together to keep Iran in check. I believe the accord has the risk of upsetting Israel, Iran, and China. Israel does not like the US getting cozy with too many Middle Eastern countries due to lack of trust. The accord could also pressure Iran to continue attacks in the region in response to the US meddling further in Middle Eastern affairs. And I’m sure China would not take too kindly to the accord as well. Therefore, the accord runs the risk of causing geopolitical tension. There has also been a lack of enforcement on Iranian crude exports. Iran’s 1.5M barrels/day exports are all being sold to China and India with no issue. The world has been calling on the US to enforce sanctions on Iranian oil exports, but Biden knows that the sanctions would raise crude oil prices. And because we are in an election year, Biden will do everything in his power to keep crude prices low. At home, there was a lot of data released. The FED decided to keep rates unchanged as inflation data continues to be holding stubbornly high. However, today’s jobs report showed a large decline in new job openings and the unemployment rate went up. The news is being digested and interpreted that the FED could move up rate cuts. If so, the price of crude oil would increase due to a weakening dollar. The EIA also reported a large increase in crude oil inventories. However, the EIA is known to be very manipulative with their data. Once again, this is an election year. The EIA will continue to try and keep a lid on oil prices. Biden is definitely the president of choice for the EPA and their policies. In summary, the drop in WTI crude oil price below $80/barrel is an incredible opportunity to put on long trades for crude oil. I do not see OPEC+ increasing production this summer. Saudi Arabia and UAE need the price of oil to move higher. Summer demand will be kicking in soon, as well as hurricanes. In other words, the drop in price is hanging on by a thread. We will see what next week brings!

The Chicago spot market prices dropped in tandem with crude oil prices. Although gasoline prices remained very firm going into the summer demand season. Diesel prices are at their lowest price in about a year. I expect refiners to look at exporting more refined products as opposed to selling spot. Focusing on exports has a better potential of pushing prices compared to selling locally. There are many incentives to pinch refined supplies at home and make prices go up. Refiners can easily export and maintain good margins. So refiners will be running at full steam, but pushing products overseas as opposed to going long in the spot market. Again, we are in an election year, and the oil companies are in opposition to Biden. I believe the oil companies will do whatever is necessary to try and inflate prices going into the fall of this year.

Propane spot prices also dropped in tandem with crude oil prices. However, futures pricing are remaining fairly firm. Propane national inventories are not building at a rapid clip. We will be keeping an eye on national inventories. With exports running at record highs, the current drop in propane prices could be a headfake and a great buying opportunity. For now, we are sitting back and waiting. Next season’s heating contracts should be released in mid-May. I also recommend filling up your tank this summer. Retail price on propane currently has great value.

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

Best regards,

Jon Crawford