Happy Friday!
This past week has been one of the most volatile trading periods in recent years. The U.S. stock market entered correction territory, and crude oil prices fell to one-year lows. A significant factor in this turmoil was the unwinding of a “yen carry trade” with the Bank of Japan. The resulting cascade of options liquidations triggered a massive selloff in the Japanese stock market, which subsequently impacted the U.S. market. Additionally, weaker economic data from both China and the U.S. exacerbated the situation, leading to a dramatic collapse on Monday. However, this downturn created one of the best buying opportunities for long crude oil positions, with many traders stepping in and preventing WTI from falling below $70 per barrel.
By Tuesday, markets began to recover as investors recognized that the selloff was overdone and that economic data was not as dire as initially feared. On the supply and demand front, the U.S. reported another substantial draw in crude oil inventories, while geopolitical risks reached an all-time high. These factors contributed to a significant rally throughout the remainder of the week, pushing WTI crude prices to close higher than the previous week, along with major stock indexes.
Geopolitical tensions escalated further as Ukraine received F-16s from the U.S., leading to increased bombings between Ukraine and Russia, as Ukraine launched a major offensive. Meanwhile, Hamas selected Yahya Sinwar as their new leader, a figure involved in planning the October 7th attack on Israel. This development makes the possibility of a ceasefire with Israel highly unlikely. Iran has yet to retaliate for the assassination of Haniyeh but has indicated that they will. In response, the U.S. has deployed a new aircraft carrier to the region, along with additional missile defense systems in Israel. The potential for an escalation of conflict in the Middle East remains extremely high.
Moreover, the world has been on edge with reports of a planned assassination attempt against Donald Trump and a terror plot at a Taylor Swift concert this week, adding to the global unrest. The heightened geopolitical energy is placing additional upward pressure on oil prices. Any significant disruption could push global crude oil supplies into deficit. U.S. producers continue their disciplined approach to maintaining production levels, which supports higher prices. Given these factors, I do not foresee another significant collapse in crude oil prices in the near future.
In local markets, the Mobil refinery in Joliet continues to face challenges, leading to tight supplies in the Chicago area. This tightness has now extended to the Group market as well. Volatility remains high, with diesel prices still elevated, although gasoline prices have started to ease. I anticipate that gasoline prices at the pump will begin to decrease in the coming days.
Despite the collapse in crude prices, propane prices did not decline as expected. Propane futures remain strong, with no significant inventory builds last week and early indications of a colder winter emerging. Once again, we strongly recommend that everyone fill their propane tanks now and consider contracting propane for the upcoming heating season.
As always, if you have any questions, comments, or concerns, please do not hesitate to contact us.
Best regards,
Jon Crawford