Welcome To The New Floor

Happy Friday!

I am back from vacation and a lot has happened since I returned! WTI Crude has established a new floor at $80 per barrel, with all attempts to fall below this price failing. This week, the price of WTI is expected to hold and close above $80/barrel. Traders have moved away from short positions and instead are placing longer-term position bets on crude prices. This shift is largely due to a reassessment of the market’s reaction to the OPEC+ meeting, which initially seemed bearish but has now been digested as bullish. Additionally, geopolitical risks have intensified, notably with Russia and North Korea’s recent pact. The pact offers increasing concerns about a nuclear weapon ending up in Iran. Ukraine’s military reported an average soldier age of 43, indicating a shortage of younger troops. France is considering deploying troops to Ukraine escalating tensions even further. In Israel, tensions persist between the government and military regarding ongoing operations. Domestically, the EIA report indicated increasing demand with U.S. families prioritizing travel over other discretionary spending despite higher gas prices. Overall, crude oil prices are aligning with my previous predictions and analysis.

The Chicago spot market is showing signs of tightness, with gasoline and diesel prices surpassing those in neighboring regions. This is surprising given the healthy refinery runs in Chicago and storm damage impacts elsewhere. It appears Chicago oil companies are redirecting barrels east due to rising demand. Barrels from Chicago and the Gulf are finding increased profitability with supplying the New York Harbor market which relies heavily on imports.

Propane prices have risen in tandem with crude oil prices. It is advisable to fill your propane tanks and lock in prices for the upcoming heating season. Prices have bottomed out recently and are now on the rise. Hopefully prices will not rise too much more.

For any questions, comments, or concerns, please feel free to contact us.

Best regards,

Jon Crawford

OPEC+ Meets And Confuses Public Opinion

Good morning!

Happy Friday! The big news this week was the OPEC+ meeting on June 2nd. Traders were looking for guidance on how long production cuts will continue to be implemented. OPEC+ countries reaffirmed their commitment to existing production cuts. These cuts, totaling 2.2 million barrels per day (bpd) for the first half of 2024, are in addition to previous reductions of 3.66 million bpd, bringing the total cuts to 5.86 million bpd​. Despite concerns over economic slowdowns in major economies, OPEC+ maintains an optimistic outlook on global oil demand growth. The organization expects demand to rise significantly, which will necessitate continued management of supply to balance the market and support stable prices. The possibility of winding down current production cuts in Q4 of this year is on the table. However, the Joint Ministerial Monitoring Committee (JMMC) will continue to closely review global oil market conditions and production levels every two months. The committee is also empowered to call additional meetings or request an OPEC+ and non-OPEC Ministerial Meeting whenever necessary to address market developments​. The meeting highlighted the importance of adhering to the Declaration of Cooperation (DoC) and the Charter of Cooperation. OPEC+ plans to extend the current production levels and assess the situation using data from three independent sources to guide 2026 reference production levels​. The markets interpreted the news as “bearish” and crude prices sank to the lowest prices in over a year. However, Saudi Arabia clarified on Thursday that the winding down of production cuts will only take place if the market is showing signs of an oversupplied market. The announcement poured cold water on the sell-off and crude prices rebounded. In addition, WTI price falling below $75/barrel triggered a massive repositioning in the options market. Traders showed signs of an oversold market and repositioned for WTI price to be back above $80/barrel at sometime in Q3.

The geopolitical risk for the commodities market continued to remain high this week as the war between Russia and Ukraine showed no signs of slowing down. Ukrainian forces reported downing 36 Russian missiles and drones targeting Kyiv. Russia launched approximately 20 missile and drone attacks on Kyiv since early May, intensifying their efforts to disrupt Ukraine’s preparations for a major counter-offensive. The international community continued to respond, with NATO emphasizing the need to prevent the conflict from escalating into a broader war between Russia and NATO. Additionally, Turkey donated a drone to Ukraine, funded by a Lithuanian fundraising campaign. The war in Palestine also showed no signs of slowing down. Although Biden announced a ceasefire plan to the UN, China and Russia are not in favor. China and Russia hold veto power. Therefore the chances of the resolution passing is slim. Families of Israeli captives held in Gaza have urged the Israeli government to accept this plan, highlighting the ongoing humanitarian crisis and the need for a peaceful resolution. The Gaza Health Ministry has reported that thousands of wounded Palestinians require urgent medical evacuation from Gaza due to the continued conflict and lack of medical supplies and facilities. Israeli forces conducted heavy artillery and helicopter raids in various areas of Rafah. These raids resulted in the deaths of several people and caused significant destruction to residential areas. This situation underscores the severe humanitarian toll the conflict is taking on the civilian population. And in a surprise announcement this morning, Houthi rebels unveiled a supersonic missile called “The Palestine” that can break through defense systems on the Red Sea. Many see the escalation will cause more attacks on ships on the Red Sea and prolong further supply disruptions. Overall, I still believe the geopolitical risks for crude oil prices outweigh demand erosion. I think Q3 of 2024 is going to be a very interesting quarter.

In local news, the EIA reported a crude oil inventory build of 1.2M barrels, a gasoline inventory build of 2.1M barrels, and a distillate inventory build of 3.2M barrels. The news was interpreted as showing signs of diminishing demand. Chicago spot market continues to hold excellent value compared to our neighbors in the West. Although Chicago spot barrels are cheap, any refinery disruption or hurricane will cause a massive spike in price. For now, everyone should take advance of the cheaper retail prices.

Propane prices continue to skip along the bottom. The EIA reported a propane inventory build of 2.5M barrels which was in line with expectations. Retail pricing of propane has great value. We believe now is a great time to consider filling your tank and contracting your propane needs for next year. Again, contracts for next heating season are cheaper than the previous winter. Almost no commodity futures are showing signs of lower pricing in 2025 compared to 2024. Feel free to call the office for more information.

As always, if you have any questions, comments, or concerns, please feel free to give us a call. I will be leaving on vacation soon and will not be having any updates for the next two Fridays. I should have the next update released on June 28th.

Best regards,

Jon Crawford