Good afternoon!
I am writing my update early since tomorrow is Good Friday and most oil traders take the day off. Crude oil prices continued to rise at the beginning of the week. Ukraine continued to bomb Russian oil refineries forcing Russia to cut production. Iraq and UAE had troubles making production quotas in February. The EIA reported another draw in crude oil supplies in America. China’s economic data started to show signs of life. And the CERAWeek conference in Houston discussed how crude oil demand will continue to increase over the coming years. In addition, if AI truly takes off across the globe, our world energy usage could increase anywhere from 25-50% globally! The numbers are absolutely bananas! The harvesting of crude oil and natural gas will have to increase in order to supply enough energy. We just do not have enough alternative energy sources, nor can we build alternatives fast enough. However, after WTI prices hit the highest price again in many months, a short pause landed towards the end of the week. The FED decided to hold rates. The EU is holding rates. The strength of the dollar remains high. The strength of the US Dollar puts strong downward pressure on crude oil prices. In addition, the potential economic collapse in the commercial real estate market is starting to take shape. As previously discussed, the majority of all commercial real estate loans are held by small to midsize banks. Commercial property values have fallen as much as 50%+ over the last year or so. The use of Commercial Mortgage-Backed Securities (CMBS’s) has rocketed over the past years and now loans are coming due. Basically, what happened in the great housing collapse of 2008 is starting to happen in commercial real estate. The potential for a major collapse is producing economic headwinds in America. There is also some light starting to shine through for a possible ceasefire in Gaza. Many groups and representatives are talking. Hopefully there could be a deal in the place over the coming week or so. At the end of the week, the crude rally finally paused and took a breather. WTI Crude price relaxed a bit but is still remaining above $80/barrel. There is a potential for WTI price to fall back below $80/barrel, but I am still bullish on crude oil prices in the near term based on market fundamentals and geopolitical issues. There is still the possibility of a contagion sell-off in Q3 through Q4 of this year. For now, sit back and kick your feet up for a bit. It’s nice to catch your breath every now and then. 🙂
In local news, the Chicago spot market finally started to sell-off basis differentials and move closer inline with Group prices. Therefore, I believe we might have peaked on refined prices in our Chicago spot market. We could start to see retail pump prices come down next week if the crude breather continues.
Propane prices held fairly firm this week. Propane price mostly followed crude. However, we are building national inventories a bit earlier than normal, so the potential for prices to fall later in the year could take shape. Basically, prices could slowly rise all summer and into the fall. Then if there is weak corn drying demand and a warm start to the following winter, prices could sell off. We had this happen the year prior. During the 2022-2023 season, the highest price for propane ended up being in the summer! I believe it’s still to early to hedge your bets with propane. Let’s first try and get through this warmest winter on record, and then see where we sit when the dust settles at the end of April.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford