Monthly Archives: January 2025

Psychological Trading or True Fundamentals?

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Good afternoon,

Prices of crude oil surged today, with WTI breaking through the psychological ceiling of $75 per barrel. Since the start of the year, options on crude have shifted from predominantly short positions to long ones. Interestingly, market fundamentals remain largely unchanged since the beginning of the year. This rapid shift in trading sentiment raises the possibility of a quick profit-taking rally followed by a subsequent price correction.

The recent momentum in crude oil prices is being fueled by geopolitical factors and speculative activity. The Biden administration has imposed the toughest sanctions yet on Russian oil flows, with Trump signaling support for these sanctions and potentially even tougher measures. However, the reported drop in Russian exports last month was due to infrastructure issues, not demand shortages. Russian crude oil will likely continue reaching markets, particularly in China and India, as it has for the past two years. Despite trader optimism, China’s economic data remains weak. Efforts to stimulate the housing market are faltering as consumer demand for housing remains low. Reports suggest China’s GDP growth may be closer to 2.5% rather than the officially stated 5%. This indicates that crude oil demand from China may not increase as traders are hoping.

Trump’s threats of a 25% tariff on Canadian commodities, including oil, could cause gasoline, diesel, and propane prices to spike for about one-third of the U.S. market. However, Canada’s ability to sell these products overseas makes such tariffs unlikely. It’s more probable that this issue will be resolved diplomatically. Trump has also proposed unprecedented sanctions on Venezuela and Iran, with plans to request Saudi Arabia to fill any gaps in supply. This could create tensions within OPEC+, as UAE and Iraq are poised to increase production. If Saudi Arabia moves to pump more oil, it may encourage other OPEC+ members to do the same, potentially offsetting any supply concerns.

From a broader perspective, this appears to be a psychological bull run. I believe those who exercise patience will benefit, as market fundamentals do not currently justify a sustained upward trajectory. If energy costs were to rise significantly, it could lead to political backlash and further complicate the situation.

In our local Chicago spot market, the spot basis has dropped slightly, but the rise in crude oil prices has pushed costs higher overall. After today’s rally, I expect pump prices to remain stable in the coming week. With potentially extreme cold weather in the forecast at any moment during a Wisconsin winter, ensure your diesel fuel is properly treated to handle Wisconsin’s unpredictable winter conditions.

Propane cost rose this week, prompting an increase in retail prices. While the market has stabilized for now, we will monitor developments closely and hope to avoid additional retail price increases next week. As a reminder, please ensure your driveway is clear of snow and ice and that there is a safe path to your propane tank. This allows us to make deliveries safely and efficiently.

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

Have a great weekend!

Best regards,

Jon Crawford

Happy New Year!.. Starting with a Head Fake?

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Good afternoon,

I hope everyone had a safe and enjoyable holiday season!

With most traders back to work, the markets are starting to pick up, though liquidity remains relatively low. WTI crude prices closed 2024 lower than where they began the year, and many traders are now buying in, hoping to capitalize on a short-term uptick to start 2025.

Headlines at the beginning of the year are attempting to push crude oil prices higher with claims that:

  • Chinese demand is poised to surge.
  • Trump-era economic policies will boost U.S. demand.
  • Potential sanctions on Iran and Venezuela will tighten the market further.
  • However, I remain skeptical of these narratives for several reasons:

While China is implementing policies to spur demand, the country’s crude oil reserves are already full. Even if demand rises, it will take time before imports increase significantly.
U.S. Production: The U.S. is currently producing 13 million barrels per day (bpd) and has the potential to add another 3 million bpd in 2025.  OPEC+ Spare Capacity: OPEC+ is holding back nearly 10 million bpd, with Saudi Arabia accounting for 6 million bpd. If needed, these reserves could quickly be brought back to market.

There is also the discussion of sanctions on Venezuela and Iran.  Both countries have found ways to navigate sanctions effectively, similar to Russia’s strategies over the past two years.  In addition, both the EIA and IEA have downgraded demand forecasts for 2025 due to global economic uncertainties, including tariff volatility and reduced consumer spending power, particularly in the U.S.

Looking ahead, I see a significant possibility of a supply-driven price drop, potentially pushing crude oil prices closer to $60 per barrel. Even if a supply shock pushes prices higher briefly, Saudi Arabia could respond quickly by increasing production, stabilizing the market. From a broader perspective, there’s little evidence to suggest a prolonged upward trajectory for crude prices as we start the year.

Chicago basis is weakening, and with the holiday travel season behind us, I anticipate a small decline in gasoline prices at the pump.  Diesel prices are unlikely to drop due to the upcoming extreme cold weather. Proper blending with #1 diesel will be critical for ensuring functionality during the subzero temperatures expected throughout January. Diesel customers should confirm blending practices with their supplier, whether it’s a distributor or a gas station, to avoid issues.

Propane prices are starting to rise as extreme cold weather is predicted across the U.S. Additionally, propane pipelines are operating at full capacity. This could lead to wholesalers increasing basis costs to suppliers like us. While we hope the cold spell is short-lived and basis costs remain manageable, it’s important to prepare. A reminder for safe deliveries:  Please ensure driveways are clear of snow and ice.  Make sure there is a clear path to your propane tank.  If we cannot safely complete a delivery, we will notify the customer to reschedule. Your cooperation helps ensure safe and efficient service during these challenging weather conditions.

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

Best regards,
Jon Crawford