Bulls Gained Momentum, But Is The Rally For Real?

Happy Friday!

This week crude oil news cycle was not as spicy as last week. 🙂 Crude oil prices started the week moving lower and continued through Wednesday. China’s stock market rout continued this week and consumer prices dropped again for the 16th straight month. The news pushed the bears along believing that Chinese crude oil demand will decrease this year. Then on Tuesday and Wednesday a few popular FED governors spoke and threw cold water on March rate cuts occuring, and also reported possibly only two to three rate cuts for the entire year. As usual, when the dollar stays strong, crude oil prices start to drop because crude oil is traded in dollars. In addition, on Wednesday, crude oil inventories in the US increased during the week prior, even though production and exports remained at record highs. The increase in stockpile coupled with the FED’s cold water on March cuts, pushed crude prices even lower. Then at the end of day Wednesday crude oil prices started to recover as the US reported killing the Iraq militant who planned the attack on the US base in Syria. As crude oil prices started to rally, the top general in Ukraine spoke out against continuing the war with Russia. Ukraine is reporting heavy loses of ammunition and the US has been unable to pass additional funding for Ukraine. Then in after hours trading, Hamas offered a ceasefire deal to Israel. Crude oil futures flattened out on a possible peace deal in the Middle East. However, we woke up on Thursday to Israel rejecting the peace deal, and Zelensky firing his top general. The news pushed WTI crude oil price past $75/barrel for the first time in a few weeks.  In two weeks, OPEC+ is having their meeting. Right now Iraq and UAE are both pumping 100k bbd of crude oil over their quotas. The meeting will all hang on Saudi Arabia’s decision. The market is pricing in that Saudi Arabia will continue their status quo. However, if Saudi Arabia decides to increase production, crude oil prices will probably collapse.  But a world-wide market share competition did not go well for Saudi Arabia last time, so I’m placing my chips on the bet that Saudi Arabia stays the course.  The week ended with the US government reporting an adjusted increase to CORE inflating in November and confirmed December’s inflation number.  The release gave further support for the FED to keep rates higher for longer.  Therefore, higher rates support crude oil prices.  Crude oil prices finished higher this week for the first time in a few weeks.  In addition, WTI crude oil price finished above the psychological support price of $75/barrel.

In local news, gasoline and diesel spot prices continue to run at much higher prices due to the BP Whiting refinery being down. From the rumblings on the ground, the refinery could take 2-4 weeks to be fully operational again. So until the refinery is fully operational and delivering refined products into the market, be prepared to pay higher prices for both gasoline and diesel at the pump. Once the refinery is good to go for a bit, our local market should hopefully drop in price and offer some relief.

Propane prices have followed crude oil prices higher this week. Even though January was officially the warmest January on record, propane exports are at record highs. Our national inventories are now at the 10 year average with the warmest winter on record. Remember, we started the heating season with the top-10 ever highest volume of propane inventory in US history! So for propane inventories falling to 10-year averages even though we are experiencing a possible warmest winter on record, the appetite for propane exports is not slowing down. I expect propane to trade in tandem with crude for the coming months. I also am not seeing where retail prices will drop below $1/gallon this summer. Summer fills could possibly even be higher than today’s price if crude oil prices remain high throughout summer and exports limit the amount of propane inventory building needed for next winter. So far now, it’s a wait and see.

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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