Fundamentals Ignored

Good morning,

Traders continue to ignore fundamentals and have abandoned all hope on investing in crude.  WTI crude dropped below $50/barrel and is fast approaching $45/barrel.  The main driver is a fear of economic meltdown in 2019 causing demand destruction coupled with over supply.  Currently the U.S. is exporting more crude than importing and our production is at record levels.  In addition, Russia is pumping strong.  However, demand is still strong in the U.S. and crude inventories have dropped a bit in the U.S.  And world demand continues to be strong.  Also, the Middle East is continuing to struggle with geopolitical issues, the largest Libya oil field is under siege and out of production, and Saudi Arabia is cutting production more than expected.  In other words, when looking at supply and demand, we are moving closer to a crude deficit than a surplus, coupled with extremely volatile geopolitical issues.  But traders are staying on the sidelines and buying the rumor of economic meltdown in 2019.  So for now, we sit back and wait.  There is a potential for the bottom to fall out, but the true fundamentals point to higher prices.  The crude market is now trading on emotion which is scary.  Therefore it’s best to stay away and wait for a bottom to be carved out.  There is a tremendous opportunity at these low prices, but I’m not 100% in until a bottom is carved out.  At the end of the day, there is still more long term risk of higher prices as compared to lower prices.  The question is, how long will these lower prices stay?  That’s the billion dollar question and only time will tell.

In local news, retail prices on gasoline are ever so close to $1.99/gallon in Central Wisconsin and will probably get there.  Diesel prices have now moved below $3.00/gallon and will probably stay there for some time.  These lower prices will help for the holiday travel season coupled with warm weather.

Propane retail prices have remained steady as we experience a lull in demand before January.  For now we are predicting a cold January.  The weather is looking to change around the end of December and move colder into January with a deep freeze possible by the middle of January.  The analog data is also starting to show that February could be very cold as well.  So enjoy the warm Christmas weather because this could be the last warmth for a couple months!

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

Best regards,

Jon Crawford – Pres.

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