Good morning!
Although Goldman Sachs continues to pound the drums of $100 WTI crude oil, a lot of bearish overtones finally poked their way through the loud chatter from the bullish news cycle. Down in the Permian Basin, the largest shale oil play in the US, private companies have increased production past pre-pandemic levels. Although public companies are holding firm withholding supply, many believe they can’t hold out forever. If prices start to fall, I would expect to see market share become the name of the game. Crude oil inventories started to build in the US again which is a sign of decreased local demand as well as export demand. Although the Delta variant is calming down in America, covid cases had their highest level increase around the globe the past two months. The fears of economic slowdowns across the globe are gaining attention again. The US Q3 economic data was terrible along with many other countries. China is looking to resolve their coal shortage issues which would decrease their demand for oil. And Iran is working to maybe come back to the negotiating table with the US which would bring more transparently traded oil into the market. And the addition of more Iranian crude into the market could completely wipe out the OPEC+ agreement. As I have been writing the past two months, the oil market has been running on headlines and getting very heavy in my opinion. There are many reasons to be patient and sit back until year end while all these scenarios play out. I am still seeing more downside risk than upside risk in the long term for 2022.
Chicago spot diesel prices have dropped this past week so I expect to possibly see retail prices on diesel ease a little. Although crude prices have eased a bit, there is a slight supply disruption on gasoline coming out of Chicago, so I do not expect to see much movement on gasoline retail prices just yet.
Propane price is continuing to level off and stop the trend of flying higher. We are in the heart of contract season and demand has been very light. Corn drying has been minimal and supplies are very healthy. The US has built a little additional inventory but not a safety net. The latest forecast is calling for colder than normal temps this winter. I would take this pause in price movement lightly. Propane prices still have plenty of variables on the horizon. If we have a colder than average winter, propane could break out even higher in price. However, if crude prices collapse during the winter, propane prices could at least be held in check. I do not expect to see propane prices back in the $1/gallon range in the coming six months.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford