World War III?

Good afternoon!

Well, it has been a week. Crude oil prices relaxed a bit during the week, but clawed back and will be holding around last week’s high. The geopolitical risk for crude oil prices has not been this intense since Russia invaded Ukraine. Israel and Hamas were close to reaching a deal on a ceasefire, but the deal was called off. Intelligence reports from Israel claimed that all remaining hostages that Hamas are holding are dead. Therefore, there is no leverage to negotiate. Israel still plans on invading Rafah. But then in a surprise attack that was not discussed with allies, Israel bombed and destroyed the Iranian embassy in Syria killing at least eight Iranians. The news sent shockwaves across the world. Iran announced full retaliation for the attack. An Iranian response seems to be imminent. Israel told Iran that if any drones or other artillery from within the borders of Iran hit Israel, Israel will interpret the attack as an act of war. Israel said they will then retaliate with strikes into Iran directly. The situation between Israel and Hamas is escalating and spreading quickly into new territories. The world is starting to worry that a much larger conflict could breakout and pull more countries into war. Oh, and I haven’t even touched on Ukraine! This week was brutal between Ukraine and Russia. Ukraine struck another Russian oil refinery. Ukraine has officially damaged 15 of 30 Russian oil refineries. Ukraine has vowed to attack as much oil infrastructure as possible. However, Russia responded by destroying Ukraine’s largest power plant outside Kiev. Therefore, the more Ukraine bombs the Russian oil network, the more Russia will take out power in Ukraine. The war is really dragging and not looking good for either side at the moment. If the attacks of this week continue, both countries’ energy sector will be demolished. The energy losses are bad for the entire world. Also, in a surprise and not well covered interview, Secretary of State Blinken announced that the plan is to officially bring Ukraine into NATO. A timeline was not given, but Blinken reiterated that eventually Ukraine will be a part of NATO. Under Article 5 of the NATO treaty, an attack on any member of NATO is an attack on all members of NATO. Therefore, if Ukraine is a member of NATO and is bombed by Russia, the potential for a large-scale war is on the table. And depending on the conditions in the Middle East with Israel and Iran, as well as Chinese/US tensions, a potential for World War III is on the table. Finally, on the supply/demand projections for crude oil, OPEC+ is still calling for continued supply deficits in the market going into year-end. Many other countries and banks alike are making the same call due to healthy economies and steady demand for oil. Also, if Russia truly continues to lose the ability to export, crude oil deficits in the marketplace become all the more probable. Supplies in the US continue to see-saw back and forth, but the US still has upside capability to harvest more crude oil. Our exports of crude and refined products continue to flow at record levels. Therefore, if a hurricane takes out any of our exporting capabilities, there would be a shock to the world supply causing prices to move higher. And, just this week, Biden cancelled all future federal land leases on the oil reserves in Alaska. Alaska has always been our “ace in the hole” play for oil. Taking the largest deposit of oil off the table only flames support for crude oil deficits in the marketplace over the coming years. In addition, inflation data came in hot showing a strong March and healthy American economy. Although a stronger dollar usually lowers the price of crude oil, the stock market is taking a hit because FED rate cuts will probably be pushed out. Since crude oil world supply is looking to be in deficit this year, traders are pouring money into commodities to try and make up for stock market loses. As I have been writing for a while, I believe crude oil prices are well supported and have plenty of room to run higher.

In local news, Chicago spot markets traded in a very narrow range. Supplies in Chicago and the Group are very healthy. Therefore, large spikes in crude oil prices will probably not adversely affect refined fuel prices in the spot markets. Prices at the pump will probably move higher, but not at the percentage rate compared to crude oil price.

Propane price also continues to trade in a narrow range but is starting to find some support. Inventories last week reported a draw. During this time of year, national inventories should be starting to build. As record production and exportation continue to be strong, propane inventories continue to run lower than the five-year average. If crude prices take off, propane prices might end up following and taking away any advantage of cheaper summer fills. For now, I am still seeing next season’s heating contract pricing to be around the same price as this past heating season. Therefore, propane is continuing to display great value in price when compared to other energy commodities.

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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