Risk Premium With Crude Oil Prices Continuing To Increase

Happy Friday!

I hope this email finds everyone well. Unfortunately, the Israel/Palestine conflict is looking to turn into a war as Hezbollah and the Houthis both entered the fight this week. Saudi Arabia and the UAE are meeting for the first time in years to discuss how to make sure the war does not escalate across the entire Middle East. The King of Jordan cancelled his meeting with President Biden while Biden was in mid-flight to Israel. Jordan is looking to other countries for a security strategy. The UK Prime Minister also visited the region this week. Iran continues to fund Hamas according to almost all accounts across the globe. And now that Hezbollah and the Houthis made their voices heard, the Gaza Strip is a powder keg waiting to fully explode and possibly spread across the Middle East. Although economic data in China and the US was very weak, the dollar continued to climb as Fed Chairman Powell said that a rate pause is on the table, but another raise is possible if inflation continues. Treasury yields broke through 5% this week. Americans surveyed this week are saying they are now cutting back on discretionary spending. This coming Christmas season will be very telling for economic predictions in 2024. Home mortgage averages hit 8% for the first time in decades. Oh, and Russia moved nuclear weapons into Belarus this week. We can’t forget that Russia and Ukraine are still at war. China’s power of influence over their Belt and Road initiative hit a setback this week as most of Europe and other countries sat out of the Summit. Overall, China and the US are losing major influence as super-powers across the globe. There are trust issues and economic issues that are scaring many of their friends to distance themselves from both countries. All-in-all, the data from the week sent WTI to $90/barrel. If we close above $90/barrel, I believe that $100/barrel WTI crude oil is on the table by year end. Especially if the conflict in the Middle East continues to escalate.

In local news, the cost of diesel for our neighbors to the east (Minnesota, Iowa, etc) on Group spot pricing rose to $1.25/gal HIGHER than the Chicago spot market! Diesel supplies are extremely tight in the Group, and I believe eventually the shortage will spill over into the Chicago market as harvest picks up steam all over the Midwest. Right now, diesel prices are like the Wild West. So much volatility and no predictability. We are living in a day-to-day environment. Gasoline prices rose with the price of crude oil this week, but supplies seem to be in ok shape heading into end of year.

Propane cost rose a bit this week along with crude oil price increases. I could see retail propane prices potentially increasing in November if crude oil moves higher in price and cold weather demand starts to kick in. Supplies of propane are in very good shape compared to years past. Therefore, any fears of a shortage are low risk this 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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