Monthly Archives: September 2024

The Return of The Battle for Market Share?

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Good morning,

Happy Friday! This week’s news cycle rattled the oil markets, causing a selloff that pushed WTI crude oil prices back below $70 per barrel, with prices expected to close the week at a loss. Several factors contributed to the downward pressure on prices. Firstly, Chinese demand remains weak, and despite China announcing a series of economic stimulus plans to reinvigorate its economy, global markets, including commodities, remained skeptical. Many traders believe these measures are insufficient and too late to make a significant impact.

Additionally, Libya announced an agreement between the government and militant groups to restore 700,000 barrels per day of crude oil production, adding further bearish pressure to the market. The biggest surprise, however, came from Saudi Arabia, which announced that it would abandon its push to drive crude oil prices to $100 per barrel. Instead, Saudi Arabia plans to increase production in December to compete for market share. This announcement triggered a sharp decline in crude oil prices. Historically, Saudi Arabia’s strategy of increasing production to gain market share has led to significant price drops—by as much as 25% in the past. However, the kingdom did not provide any new price target, leaving the market uncertain about future pricing dynamics.

Despite these developments, I believe that crude oil prices will stabilize above $70 per barrel going into next year. Other OPEC+ members and even U.S. producers are unlikely to allow prices to collapse. In my view, $70 per barrel represents a sustainable operational price. I also anticipate that Chinese demand will recover next year, with global demand remaining steady. While the threat of oversupply persists, I believe the market has already priced this in, which means crude oil is currently oversold.

On the geopolitical front, several major events could trigger a sudden price spike. Ukraine may launch deeper attacks into Russian territory, Israel is preparing for an offensive against Hezbollah in Lebanon—the first since 2006—and China recently tested an intercontinental missile near Japan. If any of these situations escalate, the potential for a sharp increase in crude oil prices remains high.

In local markets, the Chicago spot market continues to face significant product shortages, as does the Group market. As a result, spot prices have surged compared to the Nymex benchmark. Both gasoline and diesel are trading at a premium due to several factors: Midwest refineries are offline for maintenance, demand is increasing with the harvest season, and Hurricane Helene is putting pressure on Chicago and Group markets to ship refined products they don’t currently have to the Gulf Coast. I expect retail gasoline and diesel prices to rise at the pump, and we could see elevated prices for the next couple of months until refining capacity returns to normal.

While propane prices remain relatively soft, I believe this will be short-lived. Hurricane Helene temporarily halted both exports and production, balancing supply and demand dynamics. NGL has also announced that it will take its export terminal offline for maintenance, though this will only be a brief disruption. As demand picks up east of the Rockies, particularly with corn drying and eventually home heating, I expect propane prices to recover.

As always, if you have any questions, comments, or concerns, please don’t hesitate to give us a call. Have a great weekend!

Best regards,

Jon Crawford

Where Do We Go From Here?

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Happy Friday!

Crude oil prices are set to close the week at their highest level in weeks, with WTI now firmly above $70 per barrel. Several factors have contributed to this upward momentum, including a full 50 basis point rate cut by the Federal Reserve, a similar rate cut by the European Central Bank (ECB), and escalating conflict between Israel and Hezbollah. The Federal Reserve’s rate cut has devalued the dollar, making crude oil more expensive since it is traded in U.S. dollars. Additionally, the ECB’s rate cut has signaled that other central banks may follow suit, potentially increasing crude oil consumption across Western economies. The conflict between Israel and Hezbollah has also intensified, particularly in Lebanon, where remote explosive devices were used, further contributing to geopolitical uncertainty and supporting higher oil prices.

Despite these bullish factors, there is still bearish news on the horizon. China continues to exhibit signs of economic weakness, with demand for refined fuel products at its lowest levels in years. Additionally, China’s financial sector remains unstable. More bearish news comes from Russia, which is utilizing a shadow fleet of tankers to circumvent sanctions and continue selling crude to various countries. Although the U.S. and NATO have imposed sanctions on countries purchasing Russian crude, these have yet to be enforced in any meaningful way. As a result, Russia has maintained its crude oil sales, even supplying nations that are U.S. allies. Overall, global crude oil demand appears to be relatively flat, while ample spare capacity and the commissioning of new refineries worldwide could easily tip global petroleum supplies into surplus. Although crude oil prices are rising, the prospect of a potential supply surplus is preventing more dramatic price increases.

Locally, the cost of gasoline and diesel continues to rise alongside crude oil prices. However, the Chicago spot basis has seen a sharp increase, largely due to higher demand from the harvest season and the shutdown of multiple refineries for maintenance. As a result, we can expect retail pump prices to rise next week and remain elevated for the foreseeable future.

As for propane, fundamentals continue to show weakness. National inventories are in excellent shape, and there are currently no concerns about supply shortages. That said, prices may climb higher as demand increases, particularly as the propane-to-crude price ratio still has room to rise. If we experience a colder-than-average winter, I expect propane prices could rise sharply due to the unseasonably warm winters we’ve experienced over the past two years. For this reason, I strongly recommend topping off your propane tanks and locking in a portion of your winter supply to protect against potential price spikes during the colder months.

As always, if you have any questions, comments, or concerns, please don’t hesitate to reach out.

Thank you, and have a great weekend!

Best regards,

Jon Crawford

Almost Back To Where We Started

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Happy Friday!

WTI crude oil prices are nearing $70 per barrel once again, a key support level for various reasons. At this price, most refiners can operate profitably. Interestingly, geopolitical news has not been the primary driver pushing prices higher. Many traders believe the market was oversold. Russia continues to face challenges selling its product on the open market, and Libya has yet to return to full export capacity. Meanwhile, Hurricane Francine temporarily halted most production in the Gulf this week. Additionally, U.S. national crude inventories continued to decline despite high refinery runs and crude production levels, signaling there is still demand somewhere.

Analysts remain divided on the outlook for future demand, with institutions like the IEA, EIA, OPEC+, and various large banks frequently adjusting their projections for crude oil consumption. While China’s recession is a real concern, many believe that the country will eventually regain its economic footing, possibly as soon as next year. On the geopolitical front, tensions between Russia and Ukraine could escalate if the U.S. permits Ukraine to launch ballistic missiles into Russian territory. Russia has issued stern warnings, indicating that such an attack would be viewed as an act of aggression from NATO. The ongoing conflict in Gaza continues without a clear resolution, though it has not significantly influenced oil prices.

Locally, the Chicago market firmed up this week, signaling that the low prices of the past two weeks may be behind us as we move into October. Harvest season will likely put added pressure on refined products in our region. However, despite this anticipated increase, retail prices for both gasoline and diesel should remain relatively low compared to historical averages.

Propane prices continue to stay weak, with national inventories remaining robust. However, there is potential for a strong corn-drying season and a colder-than-expected winter. Once exports resume after the disruptions caused by Hurricane Francine, I anticipate that many countries will increase their propane imports in preparation for the winter months. As such, I highly recommend that everyone top off their propane tanks now and consider contracting some gallons for the upcoming winter season.

As always, if you have any questions, comments, or concerns, please don’t hesitate to reach out. Have a great weekend!

Best regards,

Jon Crawford

The Bears Continue to Win

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Good morning,

Happy Friday! Oil prices reached their lowest levels of the year this week, effectively erasing all gains in WTI pricing for 2024. China’s ongoing reduction in oil imports, coupled with lackluster economic data from both Europe and the U.S., has fueled concerns of a potential oil surplus. As summer demand in the U.S. fades, the possibility of an overall oil surplus is gaining traction. Both the U.S. and Canada continue to produce oil at record levels, while Libya has resumed production and started exporting once again.

Despite some bullish data, the sentiment remains overwhelmingly bearish as news of a potential crude oil surplus in Q4 of 2024 continues to dominate the market. The EIA reported a significant drawdown in U.S. crude oil inventories, and many refiners are entering maintenance in Q4, leading to reduced refining runs. However, even these bullish reports couldn’t significantly alter the market’s course. The Federal Reserve is expected to cut rates, which could make crude oil more expensive. OPEC+ made a surprise announcement that production increases may not occur until December, and Kazakhstan is experiencing production slowdowns due to technical issues and maintenance. But these bullish developments provided only brief support for prices.

Geopolitical factors are also beginning to contribute to the bearish outlook. Russian President Vladimir Putin announced his willingness to discuss peace under specific terms. If a peace deal or ceasefire is reached between Ukraine and Russia, the unrestricted flow of Russian oil could further heighten the risk of a global oil surplus. As a result, the economics of crude oil are increasingly pointing toward a bearish trend. WTI prices have fallen below $70 per barrel, and while speculative, based on current fundamentals, a drop below $60 per barrel is possible in Q4 of 2024 or Q1 of 2025.

On the local front, the Chicago spot market basis has collapsed alongside the decline in crude oil prices. Gasoline and diesel prices have fallen to their lowest levels of the year, with retail gasoline prices dipping below $3 per gallon in some local markets. Diesel prices are also approaching sub-$3.29 per gallon levels for the first time this year. While demand is decreasing as children return to school, motorists can expect to enjoy lower prices at the pump for at least the coming weeks.

Propane prices, once again, did not follow the downward trend of crude oil. As previously mentioned, the propane price percentage relative to crude oil still has room to increase before we see a significant rise in spot prices. The propane-to-crude price percentage has climbed from 34% to 44%, moving closer to historical averages. There remains some room for further percentage increases, which supports the stability of propane prices even as crude oil declines. I continue to recommend that customers contract a portion of their heating needs for the upcoming winter. The Farmer’s Almanac is forecasting a colder-than-average winter, and it’s worth noting that the past three winters have been some of the warmest on record. Topping off tanks at current prices is a prudent move.

As always, if you have any questions, comments, or concerns, please don’t hesitate to contact us. Have a great weekend!

Best regards,

Jon Crawford