Happy Friday!
Crude prices ended the week lower compared to last week. OPEC+ will be meeting on June 2nd to discuss production quotas going into summer. According to their projections, global oil demand is expected to increase by approximately 2.25 million barrels per day (bpd) in 2024, driven by a strengthening Chinese economy and robust demand from other non-OECD countries. This growth in demand is anticipated to outpace the rise in non-OPEC supply, positioning OPEC to play a crucial role in balancing the market and influencing prices. OPEC also predicts that the call on its crude oil—the amount needed to balance global supply and demand—will be significantly higher than current production levels. The organization estimates this demand to be around 28.49 million bpd in 2024, compared to their December 2023 output of 26.7 million bpd. This indicates that OPEC’s supply cuts and production strategies will be critical in maintaining market stability and supporting higher prices. Furthermore, despite the possibility of an economic slowdown in the U.S., China, and Europe, OPEC maintains an optimistic view. They expect that ongoing geopolitical tensions, potential supply disruptions, and strategic production cuts will help sustain oil prices. Additionally, any economic stimulus measures, such as Federal Reserve rate cuts, could provide further support by devaluing the U.S. dollar, which typically boosts oil prices. This week, the Ukraine war has seen several significant developments. Russian forces have intensified their attacks, including a missile strike on an apartment building in Kharkiv, resulting in at least four deaths. Another missile hit first responders shortly after the initial strike. Moscow has also launched attacks using ballistic missiles and drones on various Ukrainian targets. Ukraine has launched drone strikes targeting Russian military infrastructure in Crimea. Kyiv’s forces claimed successful hits on the Kerch ferry crossing, causing significant damage. The US and Germany have allowed Ukraine to use their supplied weapons to strike targets inside Russia. This decision has escalated tensions, with Russia warning that such actions could lead to a direct conflict with NATO. Discussions about peace conferences continue, with China advocating for an inclusive peace summit recognized by both Russia and Ukraine. Meanwhile, European support for Ukraine remains strong, despite Russia’s criticism. Over the past week, the situation in Rafah has been marked by intense conflict and significant international response. An Israeli airstrike on a displaced persons camp in Rafah killed at least 45 people and injured hundreds. The strike targeted Hamas officials but resulted in high civilian casualties, drawing widespread condemnation. Israeli Prime Minister Benjamin Netanyahu described the incident as a “tragic mistake” and the Israeli military pledged to investigate. International leaders, including the UN Secretary-General and the European Union, have condemned the strike and called for adherence to international law. The Biden administration has also urged Israel to take all possible precautions to protect civilians during military operations. However, the Biden administration has concluded that war crimes have not been committed according to the United States’ definition. Overall, geopolitical events remain very volatile. For now, we wait for the results of the OPEC+ meeting and go from there.
In local news, the EIA inventory report for last week released the following information. Crude Oil: 4.2M barrel draw / Gasoline: 2M build / Distillate: 2.5M build. The report was interpreted as bearish due to the increased inventories of finished products. Chicago continues to be over supplied with gasoline and diesel. Therefore, with the possibility of decreased demand, the Chicago Spot market sold-off again. I expect to see prices at the pump drop a bit next week.
In propane news, the EIA inventory report for last week released information showing a 2.1M barrel build. The build was lower than expectations and exports were at the 3rd highest volume ever reported in one week. Propane prices are continuing to firm up as national inventories have now fallen below last year’s levels at this same time of year. Next season’s heating contracts have been released. I highly recommend everyone topping off their tanks at the current value of propane compared to crude oil price.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford