Monthly Archives: July 2024

Trap Door or a New Floor?

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Happy Friday! This week, crude oil prices experienced significant fluctuations, with WTI crude dropping below $80 per barrel for the first time in several weeks. The $80 per barrel mark has been considered a psychological support level. The decline in crude prices was primarily influenced by expectations of the Federal Reserve cutting rates in September, weaker-than-expected economic data from China, and the potential for another ceasefire agreement between Israel and Hamas. Although these factors were interpreted as bearish, there are inconsistencies in the details.

The anticipated Federal Reserve rate cut has already been factored into the market for over a month. Consequently, the recent sell-off based on Federal Reserve data appears to be an overreaction. The economic data from China was indeed weak, prompting China to lower its borrowing rates. However, China has a history of manipulating its currency to remain competitive globally. As the United States approaches a presidential election, China is prepared to engage in trade disputes with a lower yuan valuation. Despite President Biden’s announcement of a potential ceasefire deal between Israel and Hamas, Benjamin Netanyahu, in his speech to the US Congress this week, did not mention any such deal.

A closer examination of these three points suggests that the recent drop in crude prices is a temporary anomaly. Similar patterns were observed last month, with prices quickly rebounding. Once WTI prices fall to around $78 per barrel, traders tend to clear positions and buy back in. Therefore, I believe crude oil is once again oversold. The bullish data for crude oil prices this week was robust. The US economy grew at a 2.8% rate, exceeding expectations. The consumer economy in the US shows no signs of slowing down. The EIA reported another drawdown in crude oil inventories nationwide, and the Federal Reserve’s PCE number aligned with expectations. Without any significant contraction in the US economy, I do not foresee a path to lower oil prices. Oil companies continue to reduce oil rig counts to maintain steady production levels. I firmly believe that $80 per barrel is the floor for WTI crude oil prices, and recent events are likely a temporary anomaly.

In the local Chicago market, Mobil announced plans to restart their Joliet refinery this weekend, with refined products expected to start flowing in early August. This news caused gasoline and diesel spot basis prices to drop. While gasoline spot prices dipped, diesel spot prices did not fall as much as anticipated due to tight diesel inventories going into the turnaround season. Additionally, the Midwest is predicting a large harvest this season, which will increase diesel demand and pressure supplies this fall.

Propane prices remained stable despite the dip in crude oil prices. The EIA reported a small build in inventory this week, which offset the previous week’s large build caused by Hurricane Beryl closing exports rather than increased production. I expect propane prices to continue trading within a narrow range. Propane still offers excellent value compared to crude oil prices. I recommend filling your tank this summer and locking in prices for the upcoming heating season.

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

Best regards,

Jon Crawford

Drill Baby, Drill!

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Happy Friday!

This week, crude oil prices continued to trade within a narrow range, with WTI holding above $80 per barrel. Geopolitical news was relatively quiet. Ukraine is grappling with a severely damaged electrical grid, potentially increasing diesel consumption for generators. Russia shows no signs of de-escalating, and tensions are rising in Palestine as Israel killed a Hamas commander in Rafah. Additionally, the Philippines constructed an aircraft landing strip near Manila in contested waters with China, potentially escalating tensions regarding Taiwan. The Shanghai Cooperation Organization (SCO), which includes China, Russia, and several other nations, met and pledged mutual military and economic support, posing a potential challenge to NATO. These developments underscore a possible economic conflict and a cold war-like military structure emerging globally.

Crude oil supplies remain tight worldwide as producers exercise disciplined production. The U.S. is recovering from Hurricane Beryl, which temporarily halted exports and refinery operations. Normal operations are expected to resume in a few weeks. The Federal Reserve’s anticipated rate cut in September could weaken the dollar, putting downward pressure on crude oil prices. However, producers have signaled continued production cuts if rates decrease. Former President Trump announced plans to make the U.S. the leading global producer and exporter of crude oil, though U.S. producers remain focused on maintaining higher prices through disciplined production. OPEC agrees that reducing production during a recession is essential to sustaining higher prices. The consensus among global oil companies is “less barrels for more money,” suggesting no imminent price reductions despite a potential landscape for higher U.S. production under a Trump administration.

Severe thunderstorms forced an emergency shutdown of Mobil’s Joliet refinery in Illinois, causing significant price increases for gasoline and diesel. The refinery, producing about 300,000 barrels per day, will be down for at least a few weeks, impacting supply during the refinery maintenance season. Consequently, gasoline prices increased by nearly 30 cents per gallon and diesel by 20 cents per gallon, with prices expected to remain high into August.

Propane prices remained stable, trading in a narrow range alongside crude oil. Propane continues to offer excellent value, and we strongly recommend filling your tanks and locking in prices for the upcoming winter.

As always, please feel free to contact us with any questions, comments, or concerns.

Best regards,

Jon Crawford

Back to Economics

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Happy Friday!

This week, crude oil prices closely tracked economic data, with WTI trading within a narrow range but maintaining a level above $80 per barrel. The early-week sell-off was driven by weak economic data, including reports of cooling U.S. inflation and Saudi Arabia’s decision to delay future infrastructure investments. Additionally, Federal Reserve data suggested a potential rate cut in the near future. Although these economic indicators slightly depressed crude oil prices, supply concerns prevented prices from falling below $80 per barrel. The EIA reported a significant draw in crude oil inventories, and the U.S. oil rig count continued to decline. This data supports the thesis that American oil producers are exercising discipline by reducing production in response to weak demand to sustain higher prices.

Geopolitical factors also contributed to bullish sentiment. The U.S. announced plans to send larger bombs to Israel as it continues its conflict with Hamas in Rafah. In Ukraine, reports emerged of a children’s hospital bombing, and President Zelensky spoke at the NATO summit, where continued military support for Ukraine was pledged. These geopolitical issues supported oil prices, but economic data was the primary driver this week.

In local news, the Chicago spot market experienced a significant drop in diesel basis, leading to expected lower diesel prices at the pump. The gasoline basis in Chicago continued to lengthen slightly against rising crude prices, keeping gasoline prices stable despite the increase in crude oil prices. Chicago is expected to remain long on basis until the next refinery turnaround, projected for late August or early September. Motorists in Wisconsin should benefit from the competitive pricing of refined products throughout the summer.

Propane prices have continued to rise in line with crude oil prices, with futures prices now exceeding the six-month average. Customers are strongly encouraged to fill their propane tanks and lock in their propane gallons for the upcoming winter. For more information, please contact our office.

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

Best regards,

Jon Crawford

Happy 4th of July!

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Good afternoon!

I would like to wish everyone a safe and happy 4th of July! Crude oil prices have risen throughout the week, along with finished products, ahead of the busiest travel weekend of the year. Additionally, the Federal Reserve holding rates steady and the approach of hurricanes in the south have continued to support higher crude prices. Consequently, I expect pump prices to increase. All finished product prices, including propane, ended the week higher. With many traders out of the office, trading volumes are light, which can lead to price volatility. Enjoy the rest of the holiday week!

Best regards,

Jon Crawford