Monthly Archives: November 2024

Black Friday Clouds On The Horizon

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Good afternoon,

Happy Friday! I hope everyone had a wonderful Thanksgiving! One notable perk of this year’s holiday was the drop in fuel prices at the pump. As we approach the end of the year, the outlook suggests that lower fuel prices may persist for a while longer. Crude oil prices closed firmly below $68 per barrel heading into the Thanksgiving weekend, reinforcing a bearish sentiment in the market. Crude oil inventories worldwide are expected to move into surplus in 2025, driven by stagnant demand growth in China and other regions. Chinese GDP growth remains flat, with stimulus measures viewed as short-term fixes rather than pathways to sustained recovery. Chinese crude imports and refinery runs are both decreasing, reflecting a sluggish economic environment.

Further downward pressure came from President Trump’s announcement of new tariffs: a 25% tariff on all goods from Mexico and Canada and an additional 10% tariff on goods from China. These tariffs strengthened the U.S. dollar, which in turn pushed crude oil prices lower. However, many analysts believe Trump’s move is a negotiation tactic aimed at bringing other countries to the table. Tariffs on Canadian crude oil imports could lead to significant price increases in parts of the U.S. due to the dependence of many refiners on Canadian crude, but negotiations are already underway with leaders from China, Mexico, and Canada. Meanwhile, OPEC+ delayed their production quota meeting from December 1 to December 5, with traders anticipating that current voluntary production cuts will remain in place. The U.S. continues to set records as the world’s largest oil producer, now exceeding 13 million barrels per day—a milestone no other country has reached. Even with significant spare capacity in OPEC+, American producers and other oil-exporting nations have pledged to maintain a price floor, likely around $60 per barrel.

On the geopolitical front, the ceasefire between Israel and Hezbollah in Lebanon has reduced tensions in the Middle East, though some violations have already been reported. Escalation between Russia and Ukraine remains the only significant bullish factor in the market, though the conflict appears to be losing momentum. Both Russia and Ukraine have expressed interest in negotiating peace under a Trump administration. Additionally, Trump’s proposed sanctions on Iran are set to go into effect on day one of his presidency. These sanctions could significantly reduce Iran’s export revenue and weaken financial support for groups like Hamas, Hezbollah, and the Houthis. Satellite technology is now effectively tracking Iran’s use of ghost ships and mid-ocean cargo transfers, further tightening enforcement.

Overall, the crude oil market is decidedly bearish, with a price floor likely around $60 per barrel. I expect WTI crude to trade between $65 and $75 per barrel in the long term. With global refining capacity steadily recovering, there appears to be no urgency to lock in futures prices at this time.

The BP Whiting refinery issue has largely been resolved, with the Chicago Spot Market realigning with the Group Spot. Both markets have moved to the January futures contract, and pricing has stabilized. I anticipate that these lower pump prices will continue through the holiday season. For those looking to lock in fuel prices for next year, January and February may provide the best opportunities.

Propane prices remain well-supported due to early cold weather and robust export demand. While crude oil prices have dropped below $70 per barrel, propane prices have ticked slightly higher. This firmness is driven by strong demand, signs of low natural gas inventories in Europe, and the potential for increased exports if China experiences a colder winter. Additionally, the proposed 25% tariff on Canadian propane, if implemented in February, could send spot market rail propane prices sharply higher. Customers who contracted propane for the winter are well-positioned. For those who have not yet contracted, I recommend filling tanks before Christmas week to avoid potential price volatility later in the season.

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

Best regards,

Jon Crawford

Over-Supply Jitters Running Wild

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Good afternoon,

Happy Friday! This week, crude oil prices stabilized after the initial fizzle of the “Trump Trade.” Prices traded in a narrow range as the market digested a wave of economic data. WTI hovered near $70 per barrel, reflecting a delicate balance between bearish sentiment and potential geopolitical risks. China’s economic struggles continue to weigh heavily on crude prices. While Chinese home prices appear to be stabilizing, overall crude demand remains weak. GDP growth is stagnant, and stimulus packages are viewed as temporary fixes rather than drivers of sustainable economic growth. Chinese crude imports are flat, refinery runs are declining, and the world’s second-largest economy appears to be stuck in a holding pattern.

Meanwhile, the IEA, OPEC, and other financial institutions revised their outlooks for global crude oil inventories. Many now predict a surplus throughout all of 2025, extending earlier projections that anticipated surpluses only in the first half of the year. This shift is driven by weaker-than-expected Chinese demand and announcements of increased production from OPEC countries like Iraq and the UAE. Additionally, Mexico’s state-owned oil company received a government bailout to maintain its output, and the U.S. under the Trump administration is expected to accelerate leasing for Gulf oil production. With U.S. output already at 16 million barrels per day, the potential for a significant global glut is growing.

However, refining capacity could emerge as a counterbalance to rising crude inventories. Refineries around the globe are shutting down due to environmental regulations, economic pressures, or geopolitical issues. In the U.S., particularly California, refinery closures are accelerating due to strict environmental policies. China and Russia have also scaled back refinery operations, while Indonesia is adding new facilities. As a result, global refining capacity may move into deficit, which could support prices even in the face of higher crude inventories. Additionally, many American oil companies remain focused on disciplined production and shareholder returns rather than aggressive drilling campaigns. While “drill baby drill” may be a rallying cry under Trump’s pro-oil stance, U.S. producers are unlikely to flood the market in ways that significantly depress prices.

While geopolitical risks remain, many believe they are diminishing as Trump prepares to take office. Israel is continuing operations in Lebanon, but Iran has reached out to the U.S. to deny involvement in an alleged assassination plot against Trump. Trump’s expected tightening of sanctions on Iran could reduce Iranian oil exports, further tightening supply. Ukraine and Russia remain locked in conflict, but there are rumors that Trump is already negotiating a peace treaty ahead of his inauguration. Russian President Putin has even met with German Chancellor Scholz to discuss potential peace terms.

One wildcard is Trump’s proposed tariff strategy, including high tariffs on Chinese goods and smaller tariffs on imports from other nations. These measures could stoke inflation, potentially leading to a recession and lower refined product consumption. However, the Federal Reserve might lower interest rates to counter inflation, weakening the dollar and supporting higher crude prices. At present, bearish sentiment dominates the news cycle, but there are many moving parts as we approach the start of Trump’s presidency in 2025.

In the Chicago market, spot basis for gasoline has finally eased after refinery maintenance was completed, bringing healthier supplies back online. With harvest demand winding down, prices are starting to fall as we head into the holiday season. Gasoline and diesel prices at the pump are likely to remain stable. If crude oil prices hold steady through year-end, we can expect some price relief at the pump for holiday travel.

Propane prices remain stable but are edging slightly higher as winter demand begins. Despite high national inventories, increased export capacity is keeping the market balanced. Weather forecasts consistently predict an average to colder-than-average winter, which is notable given that recent winters have been warmer than normal. For now, no major surprises are expected going into the holiday season.

As always, if you have any questions, comments, or concerns, please feel free to reach out. Have a great weekend!

Best regards,

Jon Crawford

Unwinding the Trump Trade

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Happy Friday!

This week’s big news was, of course, the U.S. Presidential Election, with Donald Trump emerging as the winner. Markets responded swiftly, pricing in what’s been termed the “Trump Trade.” Following the election, the stock market surged. While equities saw gains, crude oil prices remained relatively flat. Initial price support came from the potential for a hurricane in the Gulf, coupled with the anticipation of this week’s Federal Reserve meeting. However, as the hurricane threat subsided, crude prices began to decline as the “Trump Trade” took effect, with traders anticipating that Trump’s pro-oil stance might put downward pressure on crude prices.

Despite this, WTI crude prices held above the psychological support level of $70 per barrel. Along with China releasing continued poor economic data with weak stimulus, the Fed cut rates by another 25 basis points, and Chairman Powell stated he would not step down if requested by President Trump. Additionally, Trump is expected to exert significant pressure on Iran’s crude oil exports. Although Saudi Arabia could potentially fill any supply gaps, it’s unclear whether OPEC, alongside U.S. producers, would be interested in driving crude prices downward. As the dollar retreats from recent highs, crude oil becomes more expensive, which further supports prices. Should Trump successfully implement additional tax cuts and navigate the complexities of tariffs, American oil consumption could rise.

For these reasons, the “Trump Trade” has not pushed crude prices as low as some had anticipated. In fact, many traders predict that WTI will remain within the $70–$80 per barrel range throughout next year. I tend to agree; while the Trump administration may be “pro-oil,” this stance may not necessarily translate to lower crude prices.

In local news, the Chicago Spot Market has stabilized relative to the Group Spot market, and the harvest season is nearing completion without major disruptions. Prices traded steadily this week, so I do not expect significant changes at the pump in the coming days.

As for propane, it remains steady. Inventory levels are high, but any uptick in Chinese demand could lead to a surge in exports. Additionally, there’s caution surrounding the winter forecast, which suggests colder-than-average temperatures and above-average precipitation. For now, we enjoy the transition from autumn into the holiday season and await what the winter may bring.

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

Continued Yo-Yo Effect

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Good morning!

Happy Friday! I hope that everyone had a safe and fun Halloween! Crude oil prices went on a wild ride this week, but again are looking to end where they started. Crude prices skyrocketed on Monday after Israel performed retaliatory strikes on Iran. After crude prices moved higher on potential supply disruptions in Iran, crude oil prices collapsed. In fact, crude oil prices fell the most in one day over the past six months! Israel only attacked military sites and not any nuclear or oil facilities in Iran. Therefore, the markets interpreted the retaliation as Israel not wanting to escalate the conflict any further. Rumors started floating that Israel was willing to consider a ceasefire in Gaza. However, Israel continued strikes in Gaza and Lebanon this week. But then in a head-fake, Iran announced today that they are planning a retaliation strike on Israel for the bombing of their military sites on Monday. The news pushed WTI crude price back over $70/barrel. In more geopolitical news, Russia is looking to send North Korean troops into battle in the Kursk region in Russia that Ukraine currently occupies. The potential for further escalation involving North Korea put more risk premium from the war in Ukraine back into the market. In world economic news, China’s economy seems to be rebounding. Economic analysts are now calling for increased crude oil demand in China. I have been writing about this for months! I said China would fix their economic problems. They are a huge economy with many tools in the box to spur growth. With only a week of positive economic news, the markets changed their next year outlook after six previous months of poor economic data! The US continues to be producing crude at a record pace and supply seems to be healthy. In addition, OPEC announced that they might kick the can down the road for increasing crude oil outputs. I was optimistic that Saudi Arabia would try and lead the charge to not increase production this month. At this point, OPEC is looking to review in January. Again, WTI crude oil price is stuck in a $5/barrel trading range. There is definitely some value in the market at these current prices. The “Election Trade” is a complete crapshoot and predictions are all over the map where crude prices go after November 5th. I am a bit more bullish on crude oil prices moving forward due to continued loss of refineries. Crude supply is healthy, but refineries are continuing to shut down even as new ones come online. At the current rate, refining capacity looks to possibly decline in the coming year. Therefore, regardless of crude oil price, low refining capacity will prop up gasoline and diesel prices.

In local news, the Chicago spot market is experiencing some supply tightness as harvest cleans up. Our neighbors in the Group are experiencing lower diesel prices due to being ahead with their harvest. I expect Chicago spot prices for diesel to fall back below the Group by the end of November. Gasoline prices continue to trade in a narrow range along with the price of crude. I do not expect to see any major changes on the the retail price of gasoline and diesel next week.

Propane prices are starting to move higher even though supply is very robust. The potential for further exports and production cuts in the coming months is possible if crude oil prices move lower. In addition, the weather is looking to spur early winter heating demand. We are already getting to the point where contract price and spot price are about the same. Again, if you are not contracted for the heated season, I recommend filling your tank and contracting at least some of your heating needs for the season to protect from potential basis blowouts.

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

Best regards,

Jon Crawford