The Return of The Battle for Market Share?

Good morning,

Happy Friday! This week’s news cycle rattled the oil markets, causing a selloff that pushed WTI crude oil prices back below $70 per barrel, with prices expected to close the week at a loss. Several factors contributed to the downward pressure on prices. Firstly, Chinese demand remains weak, and despite China announcing a series of economic stimulus plans to reinvigorate its economy, global markets, including commodities, remained skeptical. Many traders believe these measures are insufficient and too late to make a significant impact.

Additionally, Libya announced an agreement between the government and militant groups to restore 700,000 barrels per day of crude oil production, adding further bearish pressure to the market. The biggest surprise, however, came from Saudi Arabia, which announced that it would abandon its push to drive crude oil prices to $100 per barrel. Instead, Saudi Arabia plans to increase production in December to compete for market share. This announcement triggered a sharp decline in crude oil prices. Historically, Saudi Arabia’s strategy of increasing production to gain market share has led to significant price drops—by as much as 25% in the past. However, the kingdom did not provide any new price target, leaving the market uncertain about future pricing dynamics.

Despite these developments, I believe that crude oil prices will stabilize above $70 per barrel going into next year. Other OPEC+ members and even U.S. producers are unlikely to allow prices to collapse. In my view, $70 per barrel represents a sustainable operational price. I also anticipate that Chinese demand will recover next year, with global demand remaining steady. While the threat of oversupply persists, I believe the market has already priced this in, which means crude oil is currently oversold.

On the geopolitical front, several major events could trigger a sudden price spike. Ukraine may launch deeper attacks into Russian territory, Israel is preparing for an offensive against Hezbollah in Lebanon—the first since 2006—and China recently tested an intercontinental missile near Japan. If any of these situations escalate, the potential for a sharp increase in crude oil prices remains high.

In local markets, the Chicago spot market continues to face significant product shortages, as does the Group market. As a result, spot prices have surged compared to the Nymex benchmark. Both gasoline and diesel are trading at a premium due to several factors: Midwest refineries are offline for maintenance, demand is increasing with the harvest season, and Hurricane Helene is putting pressure on Chicago and Group markets to ship refined products they don’t currently have to the Gulf Coast. I expect retail gasoline and diesel prices to rise at the pump, and we could see elevated prices for the next couple of months until refining capacity returns to normal.

While propane prices remain relatively soft, I believe this will be short-lived. Hurricane Helene temporarily halted both exports and production, balancing supply and demand dynamics. NGL has also announced that it will take its export terminal offline for maintenance, though this will only be a brief disruption. As demand picks up east of the Rockies, particularly with corn drying and eventually home heating, I expect propane prices to recover.

As always, if you have any questions, comments, or concerns, please don’t hesitate to give us a call. Have a great weekend!

Best regards,

Jon Crawford

Posted in Uncategorized and tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , .