Good afternoon,
I hope everyone had a safe and enjoyable holiday season!
With most traders back to work, the markets are starting to pick up, though liquidity remains relatively low. WTI crude prices closed 2024 lower than where they began the year, and many traders are now buying in, hoping to capitalize on a short-term uptick to start 2025.
Headlines at the beginning of the year are attempting to push crude oil prices higher with claims that:
- Chinese demand is poised to surge.
- Trump-era economic policies will boost U.S. demand.
- Potential sanctions on Iran and Venezuela will tighten the market further.
- However, I remain skeptical of these narratives for several reasons:
While China is implementing policies to spur demand, the country’s crude oil reserves are already full. Even if demand rises, it will take time before imports increase significantly.
U.S. Production: The U.S. is currently producing 13 million barrels per day (bpd) and has the potential to add another 3 million bpd in 2025. OPEC+ Spare Capacity: OPEC+ is holding back nearly 10 million bpd, with Saudi Arabia accounting for 6 million bpd. If needed, these reserves could quickly be brought back to market.
There is also the discussion of sanctions on Venezuela and Iran. Both countries have found ways to navigate sanctions effectively, similar to Russia’s strategies over the past two years. In addition, both the EIA and IEA have downgraded demand forecasts for 2025 due to global economic uncertainties, including tariff volatility and reduced consumer spending power, particularly in the U.S.
Looking ahead, I see a significant possibility of a supply-driven price drop, potentially pushing crude oil prices closer to $60 per barrel. Even if a supply shock pushes prices higher briefly, Saudi Arabia could respond quickly by increasing production, stabilizing the market. From a broader perspective, there’s little evidence to suggest a prolonged upward trajectory for crude prices as we start the year.
Chicago basis is weakening, and with the holiday travel season behind us, I anticipate a small decline in gasoline prices at the pump. Diesel prices are unlikely to drop due to the upcoming extreme cold weather. Proper blending with #1 diesel will be critical for ensuring functionality during the subzero temperatures expected throughout January. Diesel customers should confirm blending practices with their supplier, whether it’s a distributor or a gas station, to avoid issues.
Propane prices are starting to rise as extreme cold weather is predicted across the U.S. Additionally, propane pipelines are operating at full capacity. This could lead to wholesalers increasing basis costs to suppliers like us. While we hope the cold spell is short-lived and basis costs remain manageable, it’s important to prepare. A reminder for safe deliveries: Please ensure driveways are clear of snow and ice. Make sure there is a clear path to your propane tank. If we cannot safely complete a delivery, we will notify the customer to reschedule. Your cooperation helps ensure safe and efficient service during these challenging weather conditions.
As always, if you have any questions, comments, or concerns, please don’t hesitate to give us a call.
Best regards,
Jon Crawford