Crude Trade In A Dead Cat Bounce?

Good morning!

Happy Friday!  The update this week is based entirely on national issues.  There is not much to report on international news.  After weeks of falling crude prices, the crude oil trade found some legs this week.  WTI price is now moving back closer to $95/barrel.  The EIA had an interesting report showing gasoline demand higher than expected based on a large draw in inventory, but also showed a much larger build in crude oil and distillates.  Couple the supply data with the 8.5% CPI print and markets reacted with joy believing the worst is behind us and nothing but glory days ahead!  But as I have written before, the devil is in the details.  The drop in CPI inflationary data was mostly due to the drop in price of gas/diesel.  So a slight drop in CPI was expected in my opinion.  But our economy is not going to sustain at a 8.5% CPI.  And if crude prices rebound, 8.5% CPI will not continue to decline.  Also, refining utilization stayed strong.  And with the much larger increase in diesel inventories reported, basically refiners made more diesel than gas last week.  The decline in gasoline inventories was mostly due to less gasoline being refined, not demand, in my opinion.  I believe that markets react irrationally and therefore the WTI trade is possibly in a dead cat bounce right now.  I am not going to say that these prices are going to hold into the end of the year.  We are seeing gasoline demand back at 2020 levels which was the first summer in the pandemic!  Consumers are starting to change behavior.  The calls are basically now how deep of a recession will occur.  We are receding, but I chuckle that after this week’s data the markets react like everything is now perfect and back to normal!  The irrationality of the markets create opportunity and right now, it’s time to just sit back.  I really do believe the current rally is a head fake and we are experiencing a dead cat bounce after weeks of declining prices.

In local news, gasoline and diesel prices have bottomed.  You might even see prices at the pump go up next week.  Gasoline cost rose almost 20 cents per gallon this week and diesel cost rose over 30 cents per gallon!  The volatility remains very high in the spot refined markets.  Supplies are tight but manageable.  Once summer ends, the spot markets will get very interesting.  🙂

Propane prices rebounded this week a bit as well.  I am not excited about our national inventory levels.  Our exports are strong, Canadian supplies in the East are low, and our national levels are still below the five year average.  At the moment, propane price is also considerably cheap when comparing the value to diesel and natural gas.  So even if we have a low corn drying demand and warmer fall, I don’t see propane prices falling.  Basically, propane prices look to hold around current levels, but have incredible potential upside movement.  I highly recommend topping off your tank this summer and contracting at least some of your heating gallons for the upcoming winter.

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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