Happy Friday!
Markets are always a bit wonky going into a long holiday weekend. I’ll pick back up on market updates next week. I hope everyone has a safe and enjoyable Labor Day weekend!
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford
Good morning!
Happy Friday! This past week was another eventful one in the markets. WTI crude oil experienced a significant sell-off, nearly breaching a critical support level at $70 per barrel. The primary driver continues to be global economic conditions, particularly in China. Recent data points to China’s economy losing momentum, with declines in new home prices, a slowdown in industrial output, and rising unemployment. Additionally, China’s exports of refined products and other commodities have plummeted. Meanwhile, Russia has maintained record levels of crude and refined product output, with India officially becoming Russia’s largest customer. The increased output from Russia and Iraq has added downward pressure on crude prices.
Looking ahead, OPEC+ is expected to begin unwinding its disciplined production cuts next month. If this plan proceeds, the global crude oil market could shift to a surplus, potentially triggering a “flash crash” in prices. Although the U.S. reported unexpected draws in crude oil and refined product inventories this week, the impact was offset by poor economic data and the Federal Reserve’s minutes, which suggest that rate hikes may occur in September. Additionally, the U.S. revised its job creation numbers from March, reducing them by over 800,000—a significant adjustment not seen since 2009. As summer ends and gasoline demand declines, there are concerns that overall demand for refined products may diminish. However, U.S. shale oil producers are continuing to ramp up production, raising fears of an oversupply in the domestic market.
Geopolitical tensions in Israel and Gaza took a backseat this week as discussions of a cease-fire resumed. Iran is withholding any retaliatory actions against Israel pending the outcome of these negotiations. Meanwhile, the conflict between Ukraine and Russia persists, with Ukraine advancing into the Kursk region and Russia reorganizing to target vulnerable areas in Ukraine. Despite these geopolitical risks, economic data was the dominant influence on the crude oil market this week.
We now await the Federal Reserve’s remarks at Jackson Hole regarding potential rate cuts in September, as well as the upcoming OPEC+ meeting, which will address the continuation of production cuts through the end of the year. September will be a crucial month for determining the future trajectory of crude oil prices for the remainder of 2024.
In local markets, weakening gasoline demand and the return of the Joliet refinery to full operations have led to a significant drop in gasoline prices. I expect retail gasoline prices to decrease slightly next week if current trends continue. However, diesel prices seem to have stabilized due to the onset of refinery maintenance and the approaching harvest season. Consequently, I do not anticipate a decline in diesel retail prices next week.
Propane prices did not follow crude oil prices lower. The ratio of propane prices to crude oil prices remains low. With winter pricing dynamics and a potentially high-volume corn drying season approaching, suppliers have little incentive to reduce prices for retailers. If you haven’t yet topped off your propane tank this summer, we strongly recommend doing so before winter pricing takes effect on October 1st. Additionally, consider locking in prices for at least a portion of your upcoming winter propane usage.
As always, if you have any questions, comments, or concerns, please feel free to reach out. Have a great weekend!
Best regards,
Jon Crawford
Good morning!
Happy Friday! Crude oil prices continued to trade in a narrow range. WTI price has been unable to break through the $80/barrel ceiling. The push-and-pull is between supply/demand and geo-political tensions continued to play out this week. Even though Israel is waiting on a military response from Iran and Ukraine invaded Russian territory, the supply/demand fundamentals with crude oil won over the market’s attention this week. The crude oil trade continues to remain volatile.
China reported a lot of bearish data this week. Oil prices dropped by more than 1% when weak economic indicators from China, including poor manufacturing data and low refinery runs, overshadowed geopolitical risks. China’s oil refinery output in July dropped to its lowest level since October 2022, primarily due to thin processing margins and weak fuel demand. This marks the fourth consecutive month of declining refinery output. Brent crude fell below $80 per barrel on the data. However, the U.S. retail sales data provided some economic support, suggesting stronger economic growth in the U.S. and kept a floor on crude oil prices
There were also many data points discussed on the world supply of crude oil. China and Saudi Arabia continued to lead in Russian crude oil imports. In July, China and Saudi Arabia were the largest importers of Russian products. Imports to China and Saudi Arabia increased significantly, with China using the imports for refining and Saudi Arabia for power generation. In addition, Chinese diesel consumption declined this week. Diesel consumption in China fell by 11% in June 2024 compared to the previous year, the largest decline since July 2021. The reduction is attributed to slower economic activity and the substitution of diesel with liquefied natural gas (LNG) in heavy-duty trucks. At home, North Dakota oil production continued to decline. North Dakota’s oil production fell for the second consecutive month in June, marking a decrease of 22,500 barrels per day. The state has struggled to maintain production levels since hitting a peak in September 2023. Also, the EIA reported a surprise build in crude oil inventories. U.S. crude oil stockpiles unexpectedly increased last week after six consecutive weeks of drawdowns. Gasoline and distillate inventories also fell more than expected, reflecting fluctuating supply and demand dynamics. In addition, the International Energy Agency (IEA) continued to pour cold water on crude oil prices. The IEA reduced its forecast for global refining activity growth for this year and next, citing weaker-than-expected performance in the first half of 2024.
In the local Chicago market, gasoline prices plummeted from their highs over the past month. The Joliet refinery is coming back online. Distillate prices continue to remain flat based on a supply tightness. I do expect gasoline prices at the pump to fall next week. Diesel prices will probably remain steady.
Propane prices again remain steady. We are getting closer to winter pricing dynamics and suppliers are allowing percentage to crude ratios to increase rather than cutting prices. There is still room for propane future prices to run higher even with WTI crude oil price holding below $80/barrel. I still suggest that everyone top of their propane tank by end of September and contract some propane for the upcoming winter.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford
Happy Friday!
This past week has been one of the most volatile trading periods in recent years. The U.S. stock market entered correction territory, and crude oil prices fell to one-year lows. A significant factor in this turmoil was the unwinding of a “yen carry trade” with the Bank of Japan. The resulting cascade of options liquidations triggered a massive selloff in the Japanese stock market, which subsequently impacted the U.S. market. Additionally, weaker economic data from both China and the U.S. exacerbated the situation, leading to a dramatic collapse on Monday. However, this downturn created one of the best buying opportunities for long crude oil positions, with many traders stepping in and preventing WTI from falling below $70 per barrel.
By Tuesday, markets began to recover as investors recognized that the selloff was overdone and that economic data was not as dire as initially feared. On the supply and demand front, the U.S. reported another substantial draw in crude oil inventories, while geopolitical risks reached an all-time high. These factors contributed to a significant rally throughout the remainder of the week, pushing WTI crude prices to close higher than the previous week, along with major stock indexes.
Geopolitical tensions escalated further as Ukraine received F-16s from the U.S., leading to increased bombings between Ukraine and Russia, as Ukraine launched a major offensive. Meanwhile, Hamas selected Yahya Sinwar as their new leader, a figure involved in planning the October 7th attack on Israel. This development makes the possibility of a ceasefire with Israel highly unlikely. Iran has yet to retaliate for the assassination of Haniyeh but has indicated that they will. In response, the U.S. has deployed a new aircraft carrier to the region, along with additional missile defense systems in Israel. The potential for an escalation of conflict in the Middle East remains extremely high.
Moreover, the world has been on edge with reports of a planned assassination attempt against Donald Trump and a terror plot at a Taylor Swift concert this week, adding to the global unrest. The heightened geopolitical energy is placing additional upward pressure on oil prices. Any significant disruption could push global crude oil supplies into deficit. U.S. producers continue their disciplined approach to maintaining production levels, which supports higher prices. Given these factors, I do not foresee another significant collapse in crude oil prices in the near future.
In local markets, the Mobil refinery in Joliet continues to face challenges, leading to tight supplies in the Chicago area. This tightness has now extended to the Group market as well. Volatility remains high, with diesel prices still elevated, although gasoline prices have started to ease. I anticipate that gasoline prices at the pump will begin to decrease in the coming days.
Despite the collapse in crude prices, propane prices did not decline as expected. Propane futures remain strong, with no significant inventory builds last week and early indications of a colder winter emerging. Once again, we strongly recommend that everyone fill their propane tanks now and consider contracting propane for the upcoming heating season.
As always, if you have any questions, comments, or concerns, please do not hesitate to contact us.
Best regards,
Jon Crawford
Good Morning!
Happy Friday! This week, crude oil prices followed a bell curve, ending where they began after a mid-week spike. Economic news from around the globe overshadowed any geopolitical risk premium. Despite some complexities in the details, crude oil prices are struggling to find support. China reported weak manufacturing data and low imports. The Federal Reserve announced that a rate cut is possible in September. Additionally, the U.S. unemployment rate rose to 4.1%, with only 175,000 jobs added in July, signaling economic weakness and lower demand for crude oil. OPEC+ decided to continue unwinding their supply cuts, contributing to a bearish sentiment.
However, some details suggest a different outlook. This week, Israel assassinated Ismail Haniyeh, the political leader of Hamas, in Iran. This action halted ceasefire negotiations and almost guarantees a military response from Iran, causing crude prices to spike. Traders adjusted their futures positions to long on crude oil. OPEC+ also indicated that cutting production is still an option if crude prices drop in August, and Russia is pumping crude at its lowest level in years. Producers are disciplined in avoiding oversupply, leading to an oversold market with potential buying opportunities. I do not expect crude prices to drop below $70 per barrel.
The Mobil Joliet refinery in Illinois is facing issues restarting after a tornado-induced shutdown a few weeks ago. This delay has caused a spike in regular gasoline prices and a significant increase in reformulated gasoline prices. The shortage prompted the Federal EPA to issue a waiver allowing counties designated for reformulated gasoline to purchase regular gasoline until inventories are replenished. Gasoline and diesel prices are expected to remain higher until the Joliet refinery is fully operational.
Propane spot prices have slightly decreased from their peak but remain strong compared to crude oil prices. Propane futures are robust based on inventory levels and predictions of a polar vortex this winter. Home heating customers are advised to fill their propane tanks this summer and contract for the upcoming heating season.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford