Another Baby “Black Swan” Was Born This Week

Good morning!

I hope this message finds everyone well. There was not a lot of data released this week that should have caused major movements in crude oil price. However, WTI crude oil prices experienced a mini “Black Swan” event and dropped below $70/barrel for one day. The price of WTI $69/barrel has not happened since June of 2023. The largest issues driving the market were news that China’s economy is continuing to contract, and the possible risk of contraction to the US economy in Q1 of 2024. However, the majority of the drop was caused by “bot traders” clearing positions at the technical level of $70/barrel. Since the one day drop below WTI $70/barrel, WTI prices are now back up over $70/barrel. Therefore, I tend to agree that the sudden drop was more of an automated sell-off event. There are also many factors driving brokers to either clear positions or load up for next year. As I have been writing for months, Saudi Arabia has been the most vocal that they will not allow WTI prices to fall below $70/barrel for a long period of time. Well, guess what… Yesterday when prices fell below $70/barrel, Saudi Arabia announced that they were not afraid to call an emergency OPEC+ meeting in December and voluntarily themselves cut an additional 500k crude oil gallons/day on top of their already pledged and accounted for 1M bpd. The markets firmed up a bit and ripped higher this morning on a good jobs report and lower unemployment. The news sparked the traders to lower their risk tolerance of a Q1 2024 demand erosion. However, many of the jobs could be temporary for the holiday season. Only time will tell. Overall, commodities are always volatile going into year end as well as the start of the year. I am still long on crude oil prices for 2024 regardless of demand. I also think that right now is a good time to maybe purchase a piece of future fixed price diesel for 2024.

In local retail markets, Chicago spot prices fell off a cliff for both gasoline and diesel. I expect to see retail prices at the pump slowly fall. Someone, whether a supplier or trader, sold off a huge position in Chicago going into year-end. This sometimes happens for tax purposes. For now, retail prices should remain lower going into the Christmas travel season which is always nice and appreciated by consumers. 🙂

Propane prices did not move much this week. Prices are continuing to trade in a narrow band as demand for heating picks up. Currently, the winter of 2024 is 10% warmer than 2023. Therefore, I expect to see propane prices rise in the coming month or so to make up for volume loss.

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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