Good afternoon,
Prices of crude oil surged today, with WTI breaking through the psychological ceiling of $75 per barrel. Since the start of the year, options on crude have shifted from predominantly short positions to long ones. Interestingly, market fundamentals remain largely unchanged since the beginning of the year. This rapid shift in trading sentiment raises the possibility of a quick profit-taking rally followed by a subsequent price correction.
The recent momentum in crude oil prices is being fueled by geopolitical factors and speculative activity. The Biden administration has imposed the toughest sanctions yet on Russian oil flows, with Trump signaling support for these sanctions and potentially even tougher measures. However, the reported drop in Russian exports last month was due to infrastructure issues, not demand shortages. Russian crude oil will likely continue reaching markets, particularly in China and India, as it has for the past two years. Despite trader optimism, China’s economic data remains weak. Efforts to stimulate the housing market are faltering as consumer demand for housing remains low. Reports suggest China’s GDP growth may be closer to 2.5% rather than the officially stated 5%. This indicates that crude oil demand from China may not increase as traders are hoping.
Trump’s threats of a 25% tariff on Canadian commodities, including oil, could cause gasoline, diesel, and propane prices to spike for about one-third of the U.S. market. However, Canada’s ability to sell these products overseas makes such tariffs unlikely. It’s more probable that this issue will be resolved diplomatically. Trump has also proposed unprecedented sanctions on Venezuela and Iran, with plans to request Saudi Arabia to fill any gaps in supply. This could create tensions within OPEC+, as UAE and Iraq are poised to increase production. If Saudi Arabia moves to pump more oil, it may encourage other OPEC+ members to do the same, potentially offsetting any supply concerns.
From a broader perspective, this appears to be a psychological bull run. I believe those who exercise patience will benefit, as market fundamentals do not currently justify a sustained upward trajectory. If energy costs were to rise significantly, it could lead to political backlash and further complicate the situation.
In our local Chicago spot market, the spot basis has dropped slightly, but the rise in crude oil prices has pushed costs higher overall. After today’s rally, I expect pump prices to remain stable in the coming week. With potentially extreme cold weather in the forecast at any moment during a Wisconsin winter, ensure your diesel fuel is properly treated to handle Wisconsin’s unpredictable winter conditions.
Propane cost rose this week, prompting an increase in retail prices. While the market has stabilized for now, we will monitor developments closely and hope to avoid additional retail price increases next week. As a reminder, please ensure your driveway is clear of snow and ice and that there is a safe path to your propane tank. This allows us to make deliveries safely and efficiently.
As always, if you have any questions, please don’t hesitate to reach out.
Have a great weekend!
Best regards,
Jon Crawford