Up, Up, And Away!

Good morning!

Happy Friday! WTI crude oil prices climbed to the highest price in months. WTI price broke through the $75/barrel ceiling and is looking to close above $75/barrel for the week. In addition, futures on WTI prices are moving higher. The GDP for December was higher than expected and the US economy surpassed China as the largest economy in the world. The news really fed the bulls that the US economy continues to run full-steam ahead. In addition, the EIA petroleum inventory report showed a massive draw in crude oil inventories continuing to support increased demand. And with the Red Sea conflict rerouting ships, Europe has placed more orders with the US and Brazil for crude oil, refined products, and LNG. And the US Embassy was attacked again my Iranian backed rebels. Also, Ukraine attacked a Russian petroleum exporting terminal supporting fear of further fall-out with the war in Ukraine. And the UN failed to pass a resolution forcing a ceasefire in Gaza. Instead, the UN is asking that Israel be more careful with their tactics and military actions. All of the data this week would usually support the bullish narrative. But as I like to say, the devil is in the details. China is an absolute mess. Their economy is hanging on by a thread as the government tries to bail out a real estate disaster and a collapsing stock market. The US consumer is continuing to spend like a drunken sailor, but the spending is mostly on credit. Credit debt payments are starting to stack up and defaulting, supporting the narrative that the consumer is under economic stress and storm clouds are on the horizon. Also, the oil industry in North Dakota shut down last week due to the cold which took almost 1M barrels/day of crude oil production off the market. The loss of US production was a more realistic reason for the massive drop in US crude oil inventories as opposed to increased consumer demand. Also, Saudi Arabia continues to use the Red Sea for their shipping routes pouring cold water on the report that Europe will lose all access to petroleum products through the Red Sea corridor. And Russian crude oil is still flowing in the open market. Therefore, at the 20k foot level, I see more potential economic headwinds not only in the US economy, but also in China. And, I could see an economic slowdown in the US spreading to Europe. However, the US and OPEC+ show no signs of wanting to cut production furter. Therefore, as the IEA is suggesting, a potential for a surplus in world crude oil production beginning sometime in Q2 of 2024 is starting to take shape. A possible scenario is WTI price riding the current bull-wave higher and possibly break through $80/barrel and then collapse in Q2. How low could crude oil prices collapse? Well, that depends on how oil producing countries react to the markets and how low crude oil prices fall. I do see a potential for a collapse in WTI price back below $70/barrel, possibly even hitting $65/barrel. But if that happens, oil producing countries will start to make moves to try and bring prices back higher. In conclusion, I am not buying the news and hype of higher crude prices for longer at this moment. I feel it’s best to be patient and stomach through Q1 and see what Q2 brings.

In local news, Chicago spot prices followed crude oil prices higher. However, the price movement was minimal in percentage when compared to how high crude prices rose. Therefore, I do not see retail prices at the pump for gasoline and diesel changing much going into next week. Demand in the Midwest market will also decline as warmer temps look to hang around in the coming weeks destroying a lot of the winter tourism travel.

Propane spot prices followed crude oil prices higher at a greater percentage in comparison to gasoline and diesel. The EIA report showed a draw in national inventories three times higher than anticipated! However, propane production slowed due to the extreme cold and exports remained strong as Europe moved more orders to the US due to the Red Sea conflict. Although warmer than normal temperatures are in the forecast for the following week or two, February is always a wild card. The cold snap in January was not predicted back at the end of December, so anything can happen in February. As a reminder to all propane customers, please keep your driveway clean and have a clear path to your propane tank to ensure a safe and efficient delivery. 🙂

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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