Demand Erosion In The Lead

Good morning,

Despite continued tensions with Iran, demand erosion is winning on directing prices of crude oil.  WTI crude fell from over $60/barrel posting last week to now just over $55/barrel.  China has posted terrible economic data.  But we always need to remember that those numbers are not always trustworthy.  In addition, oil tankers from West Africa have been found in the ocean without a home.  In other words, buying is starting to slow down, even though OPEC+ has taken 1.2M barrels/day off the table.  If world demand truly slows down, then we might see crude prices drop another $5/barrel!  I am absolutely stunned at the lack of interest in traders biting on geopolitical issues right now.  With all the turmoil surrounding Iran, the data must be very convincing showing as long as the US continues to pump at current levels and world demand continues to decline, the oil market will move into surplus again, even with all the current OPEC+ cuts in place!  The next six months are going to be very interesting to watch.  If WTI crude breaks through $54/barrel, then we have a shot at seeing the floor fall out back down to $49/barrel.

In local retail news, gasoline and diesel prices have peaked following the landfall of hurricane Barry.  All oil fields have restarted and prices relaxed.  For now, I think we have experienced the highs for the month of July.

Propane prices continue to remain very low.  Propane continues to trade with crude oil, so if crude prices stay low and propane production stays strong, we should have robust inventories for the winter.  However, because propane prices have now fallen into competitive spreads against natural gas, petrochemical companies are starting to bite on stored propane in the south.  If crude prices stay low, I could see petrochemical companies taking a huge chunk out of inventories in the coming six months.  In addition, if corn drying demand is strong, we could see a further draw on inventories.  I do not believe that we will see major price spikes by Thanksgiving, but if the winter is very cold, we could start to see prices spike after Christmas into 2020.  If you have not filled your propane tank this summer, please do so!  Contracts for next heating season are also available.

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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