Not Quite Enough Confidence To Go All-In

Good morning!

Happy Friday! Demand fears continued to push crude oil prices lower this week. The IEA changed their forecast and said oil consumption will be less in 2024. The US EIA report showed a large build in crude oil inventories. And an analysis of OPEC+ showed that OPEC+ now only controls 51% of the entire global oil trade. Therefore, the power of OPEC+ production is not where it was even five years ago. The announcement sent a wave of long position selling into the marketplace causing WTI price to drop below $68/barrel for a hot minute. China released positive economic data, but the market called their bluff. And then the FED. Oh yes, the major FED announcement this week was interpreted as three rate cuts next year and one starting as soon as Q1 of 2024. The news caused the stock markets to rip higher along with crude oil prices. Crude oil prices were well on their way to the first weekly price gain in four weeks. But then today, people woke up to reality and the celebration settled down. The hangover after the rally Thursday started to wane, and today demand fears along with a potential economic slowdown hit the crude oil markets. The stock markets took a slight pause as well going into the end of the week. A FED governor announced this morning that even though three rate cuts are on the table for 2024, the cuts can easily be taken off the table. The news poured cold water on everything as everyone came back to the reality that 2024 is going to be a crapshoot of unknowns and lots of volatility. For now, crude oil prices are still at the bottom end of what I believe to be their trading range for next year. However, there is no “risk on” trading in the crude oil marketplace from the war in Ukraine and Gaza. If the Middle East starts to implode or the war in Ukraine escalates, traders could could pour back into the “risk on” trade with the wars causing crude oil prices could rip higher. For now, try and enjoy the end of the year and the holidays. Then we’ll see how 2024 starts! If you are looking to hedge positions on diesel for 2024, I highly recommend purchasing at least 25-33% of your fuel needs at this time. Prices for crude futures are still trading at the lowest range of the year. I believe in cost averaging for 2024.

In local spot market news, the Chicago market experienced a collapse in differentials on spot gasoline prices. Therefore, gasoline retail prices should stay low and possibly move even lower going into the high volume holiday travel season. Diesel differentials in Chicago ripped higher this week. There seems to be a bit of differential relief going into today. Therefore, the bottom of diesel spot prices for the year might have been early this week. I do not expect to see retail prices of diesel change that much at the pump for the rest of the year.

Propane prices continued to follow crude. Winter so far in our area is 10% warmer than last year. Demand across the country has not been great either. The EIA reported a smaller than average drop in national inventories on Wednesday. Therefore spot market prices continues to skip along the bottom range of the winter season. I expect propane prices to trade fairly flat going into year end until demand increases in January. February is always the wild card to watch. So more to come on the propane side of the petroleum trade.

I hope everyone has a great weekend, and 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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