Crude Prices Become a Falling Knife

Good afternoon,

Well, May officially became the worst performing month for WTI and Brent in the last six months.  Not only did the China trade war heat up to a new level this past week, but Trump sent a shock wave to the markets this morning with an early morning tweet announcing tariffs on Mexico.  WTI crude officially fell through the support level of $57/barrel and will now try and target $52/barrel.  Without any change in tone or action on the trade front, I believe that WTI is finding a new home under $60/barrel for a while.  In addition, China’s manufacturing data was weak, showing that maybe the trade war is slowing the second largest economy.  However, there are some geopolitical developments that could cause a pop in price.  In Libya, infighting is continuing and on the verge of another civil war.  If this happens, crude exports could be shut off to zero.  And most market analysts will say that none of this current conflict is priced into the market.  Also, China is about to receive a shipment of Iranian crude which would violate sanctions.  But countries are already figuring out ways to get around the sanctions.  And, major hedge funds have not only left their long positions in crude, but also their short positions!  Basically, “Big Money” is exiting the crude trade.  So for now, crude prices are in free fall.  What a difference a month can make!  The wild ride of crude oil prices has been the most volatile I’ve seen in a few years and I don’t see the pattern changing anytime soon.

In local retail news, terrible flooding in the Midwest has not only eroded demand but also put major bottlenecks in supply chains.  Prices out of the local Chicago and Group markets spiked to their highest differentials in years.  But prices are starting to ease as the bottlenecks are being worked out.  I could see prices at the pump starting to retreat in the next week.  Diesel prices are slowly coming down as well.  The US remains very strong in supplies and not much out their for major supply shocks at the moment.

Propane prices continue to stay very low.  In fact, we are currently at the lowest retail price in almost three years.  I strongly suggest that everyone fill their tanks at these prices.  There is a greater risk of prices going up from here rather than going lower.  Contract prices for next year are shaping up to be cheaper than last year and will be released in the coming weeks.  Stay tuned for more info on contracts.  But in the meantime, fill your propane tank!

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

Best regards,

Jon Crawford

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