Good afternoon,
I hope this message finds you all well. After throwing in the towel two weeks ago, crude oil prices are now struggling to find direction. The past week was an absolute head scratcher of price movements. Prices started the week soaring higher, as expected, with Russian forces building on the border in the Ukraine. But then Russia pulled a head-fake and said they would pullback some troops and negotiate some more. Upon the news, crude prices tanked. Although WTI did not fall below $90/barrel, most of the gains last week were wiped out. But the next day, the US and NATO claimed that Russia added more troops instead of pulling back, so up the prices went again! As we prepared for the “March to $100 Crude”, prices then collapsed out of nowhere. In a surprise announcement, the US and Iran are close to cutting a new Nuclear Deal. The deal would lift all crude oil exporting sanctions on Iran. The additional crude oil into the market would fill the deficit that formed due to OPEC’s inability to bring their exports back online as fast as promised.
In addition to geopolitical and crude production problems, data was released showing inflation over 9% and consumer confidence dropping. By Friday morning, WTI crude prices fell below $90/barrel for the first time in two weeks, even as Russia and Ukraine are on the brink of war. I have not seen such erratic behavior in the crude market for a long time. Usually when the market goes this erratic, we are approaching the next leg in movement. If the Iran deal gets done and Russia doesn’t invade Ukraine, I’m not sure we will see $100 crude oil. The volume of contracts changing hands right now is incredible. The panic is showing that banks, traders, and producers, don’t know what to do. But one thing we know for certain. Putin does not like the US Oil industry. And the US has been adding oil rigs back to the market at an incredible rate the past two weeks. The US also delivered the most LNG and gasoline/diesel exports to Europe over the past two months in our nation’s history. We are showing Putin that our country can compete on the world oil stage. Although nationally, crude supplies and refined products showed a small deficit this week, most of the deficit is going to exports. The demand in the US is starting to flatline a bit as inflation takes hold. Most consumers are trying to go back to service based spend instead of goods. But these high energy prices are causing some pause. The FED is rumored to now raise interest rates an entire 1% to try and put a lid on inflation. Even with seven or eight rate increases, we will not experience deflation for months. However, crude prices could fall lower much faster than deflation and really help release a pressure relief valve on the economy. Wow, that was a lot to unpack, but it’s been a wild week!
In local news, Chicago is VERY long on gasoline coming out of winter. We should see gasoline retail prices hold at the current rate. As warmer weather is returning, diesel winter blends are starting to subside which makes the cost lower. I also expect to see diesel retail prices hold. If we peak at current retail prices, we have a chance to really ramp up for a strong summer with driving demand.
Propane prices have actually gone up in the past week due to massive exports and increased demand. In addition, colder weather is predicted for the first two weeks of March. Although I’m not predicting any major causes for concern, suppliers and producers are using every trick they can to squeeze the last bit of profit from retailers before winter demand ends and summer inventory building season begins.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford