Good morning,
As you have noticed based on the price of gas at the pump, prices are continuing to drop. WTI crude traded below $50/barrel for the first time in over a year this week, but jumped back up over $50/barrel right away. I feel that the market is carving out a current bottom at about $50/barrel until OPEC+ meets on Dec 6th. There is so much chatter going on right now that everyone seems to be on the sidelines just waiting for the meeting. In addition, the FED stated that they might hold off on continuing to raise rates. This helped support crude prices on a fundamental level. But the geopolitical issues are outweighing supply and demand fundamentals right now. When these situations occur, if we feel crude is undervalued, an opportunity is available. And right now, I believe an opportunity is available. I see no reason that OPEC+ will come out of the meeting without planned production cuts based on the price of BRENT crude needed to balance national budgets. They understand that cuts will lead to loss of market share to the U.S. The U.S. just surpassed Russia to become the number one producer of crude at 11.7 million barrels/day. And speculation is saying that the U.S. could grow by another 2 million barrels/day! The cartel tried in 2016 to “punish” the U.S. with low prices, but the U.S. persevered and excelled. So I don’t see OPEC+ going through that experiment again. In addition, Russia is playing around with flexing it’s military muscle in the Ukraine again. The U.S. Senate just voted to stop funding support for Saudi Arabia in the war in Yemen. The Saudi Prince MBS is in hot water for his possible ordered killing of a journalist. Some feel that Trump’s support of MBS is to try and convince him to not cut production. However, Trump pulled out of a full enforcement of sanctions on Iran which threw egg in the face of Saudi Arabia and caused much of the current price drop and billions in revenue for Saudi Arabia. MBS is already in trouble for the killing, so I don’t see him allowing his economy to tank as well. That all said, there is an opportunity to purchase cheap refined product and lock in prices for next year. I expect things to change in December. But only time will tell if geopolitical factors continue to outweigh supply and demand fundamentals. I believe we are about $5-10/barrel undervalued on crude prices right now.
In local news, gasoline retail prices continue to dip below $2.29/gallon. Diesel retail prices are also heading towards $3.00/gallon depending on the winter treatments being used. I expect to see these prices hold over the coming week leading up to the OPEC+ meeting.
Propane prices have remained steady with high demand. I don’t expect to see propane prices drop any lower this winter. As a reminder, please make sure there is a clear path to your tank and that the driveway is plowed. If you are on a will-call for delivery service, please call at 30% and above to insure efficient and timely delivery.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford