The Wild Crude Yo-Yo

Good morning,

I hope everyone has been enjoying the most beautiful week of summer so far.  The weather has been fantastic!  Crude oil prices took a nose dive this week after Trump announced that he would break the truce with China on the trade war.  Trump says that he wants to put another $300 billion tariffs on Chinese goods starting September 1st.  The news was an absolute shock to the financial sector and WTI price broke through the technical floor of $55/barrel.  Once the price broke the floor, the bottom fell out and WTI closed at the lowest price of the year.  WTI dropped over $4/barrel which is the largest single day drop in over four years!  The week started with a rally in crude prices as the markets expected the FED to move towards a dovish pattern.  In addition, the US inventories of crude oil, gasoline, and diesel all experienced major draw downs.  So crude prices were primed for upward movement this week.  But the FED gave the tone that they remain hawkish in their views and the announced rate drop is only an adjustment.  And then Trump announced the September Chinese tariffs.  And the cherry on top was the report that China has purchased almost 12 million barrels of Iranian crude legally and has the crude in bonded storage at port in China which does not violate US sanctions.  This means that Iran has been able to offload crude to China at discounted rates for the work that China does in Iran without violating US sanctions.  Therefore, Iran has found a way around the sanctions.  If China decides to violate and start using the bonded crude oil, some traders believe another $5-7/barrel could come off of crude prices.  In other words, there is a glut of crude oil sitting out there just waiting to be used.  More will develop on this I’m sure.

In local retail news, retail prices have stabilized on gasoline and diesel.  Although there was a slight uptick in prices this week, I don’t expect to see any major changes on retail prices in the coming week.

Propane prices continue to move with crude.  As I have been writing, propane inventories remain very high, but the petrochemical companies started buying propane a couple weeks back.  The petrochems can blow through inventory pretty quickly, so we remained patient to see if a trend was forming.  Then this week, there was a fire at the largest Exxon/Mobil petrochemical factory in Houston.  This caused price spreads between the two storage hubs to collapse.  With the loss of more demand, propane just can’t seem to find any legs for upward momentum.  If you have not filled your tank this summer, please do so.  In addition, we have contracts for next heating season available.  Please call the office or go online to place an order!

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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