Good Morning!
Happy Friday! This week, crude oil prices followed a bell curve, ending where they began after a mid-week spike. Economic news from around the globe overshadowed any geopolitical risk premium. Despite some complexities in the details, crude oil prices are struggling to find support. China reported weak manufacturing data and low imports. The Federal Reserve announced that a rate cut is possible in September. Additionally, the U.S. unemployment rate rose to 4.1%, with only 175,000 jobs added in July, signaling economic weakness and lower demand for crude oil. OPEC+ decided to continue unwinding their supply cuts, contributing to a bearish sentiment.
However, some details suggest a different outlook. This week, Israel assassinated Ismail Haniyeh, the political leader of Hamas, in Iran. This action halted ceasefire negotiations and almost guarantees a military response from Iran, causing crude prices to spike. Traders adjusted their futures positions to long on crude oil. OPEC+ also indicated that cutting production is still an option if crude prices drop in August, and Russia is pumping crude at its lowest level in years. Producers are disciplined in avoiding oversupply, leading to an oversold market with potential buying opportunities. I do not expect crude prices to drop below $70 per barrel.
The Mobil Joliet refinery in Illinois is facing issues restarting after a tornado-induced shutdown a few weeks ago. This delay has caused a spike in regular gasoline prices and a significant increase in reformulated gasoline prices. The shortage prompted the Federal EPA to issue a waiver allowing counties designated for reformulated gasoline to purchase regular gasoline until inventories are replenished. Gasoline and diesel prices are expected to remain higher until the Joliet refinery is fully operational.
Propane spot prices have slightly decreased from their peak but remain strong compared to crude oil prices. Propane futures are robust based on inventory levels and predictions of a polar vortex this winter. Home heating customers are advised to fill their propane tanks this summer and contract for the upcoming heating season.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford