Happy Friday!
Crude oil prices are set to close the week at their highest level in weeks, with WTI now firmly above $70 per barrel. Several factors have contributed to this upward momentum, including a full 50 basis point rate cut by the Federal Reserve, a similar rate cut by the European Central Bank (ECB), and escalating conflict between Israel and Hezbollah. The Federal Reserve’s rate cut has devalued the dollar, making crude oil more expensive since it is traded in U.S. dollars. Additionally, the ECB’s rate cut has signaled that other central banks may follow suit, potentially increasing crude oil consumption across Western economies. The conflict between Israel and Hezbollah has also intensified, particularly in Lebanon, where remote explosive devices were used, further contributing to geopolitical uncertainty and supporting higher oil prices.
Despite these bullish factors, there is still bearish news on the horizon. China continues to exhibit signs of economic weakness, with demand for refined fuel products at its lowest levels in years. Additionally, China’s financial sector remains unstable. More bearish news comes from Russia, which is utilizing a shadow fleet of tankers to circumvent sanctions and continue selling crude to various countries. Although the U.S. and NATO have imposed sanctions on countries purchasing Russian crude, these have yet to be enforced in any meaningful way. As a result, Russia has maintained its crude oil sales, even supplying nations that are U.S. allies. Overall, global crude oil demand appears to be relatively flat, while ample spare capacity and the commissioning of new refineries worldwide could easily tip global petroleum supplies into surplus. Although crude oil prices are rising, the prospect of a potential supply surplus is preventing more dramatic price increases.
Locally, the cost of gasoline and diesel continues to rise alongside crude oil prices. However, the Chicago spot basis has seen a sharp increase, largely due to higher demand from the harvest season and the shutdown of multiple refineries for maintenance. As a result, we can expect retail pump prices to rise next week and remain elevated for the foreseeable future.
As for propane, fundamentals continue to show weakness. National inventories are in excellent shape, and there are currently no concerns about supply shortages. That said, prices may climb higher as demand increases, particularly as the propane-to-crude price ratio still has room to rise. If we experience a colder-than-average winter, I expect propane prices could rise sharply due to the unseasonably warm winters we’ve experienced over the past two years. For this reason, I strongly recommend topping off your propane tanks and locking in a portion of your winter supply to protect against potential price spikes during the colder months.
As always, if you have any questions, comments, or concerns, please don’t hesitate to reach out.
Thank you, and have a great weekend!
Best regards,
Jon Crawford