WTI Unable to Hold Above $50

Good morning,

Crude oil continues it’s trend of volatility. Crude recently closed at it’s highest price since May. WTI experienced a rise from $43/barrel to $50/barrel based on weak dollar, OPEC future cutting, and a sprinkle of geopolitical issues. Oh, and not to mention the large amount of long calls from speculators that entered the market a couple weeks ago. After today’s weekly inventory report, crude is back below $49/barrel and not moving much. I believe that many market makers were able to buy in quick on the rally at the end of July and sell in August. Positions left the market yesterday, so clearly some short-term profit making to boost financials was on the agenda. In addition, OPEC’s numbers came out and compliance has eroded to below 75%/, down from 90% at the beginning of the year. Even with a proposed deeper cut from Saudi Arabia, it’s not big enough to truly cut into the glut. Basically it’s enough to hold the status quo. Although the amount of rigs coming online seems to be slowing up, we are still at peak production here in the U.S. I am still calling $45-50/barrel crude for the rest of 2017. Now here’s the potential geopolitical issues that could spike crude. Oil sanctions against Venezuela, conflict with North Korea, breakdown with China, sanctions on Iran, and overall supply disruptions from political unrest. However, I feel that these issues are already baked into the price of crude right now. In other words, we will continue to ride this bumpy tight trading range around $5 for some more time. The weekly EIA Inventory Report showed a 1.5MM barrel draw in crude (not that surprising), a 2.5MM barrel draw in gasoline (not that much for this time of year), a 200k draw of distillates (this is very small for this time of year), and a 1.7MM barrel increase in propane inventory (which still puts us at peak propane levels about 20MM barrels below last year).

In retail news, gasoline and diesel costs have risen dramatically due to the rise in crude. Gasoline retail is averaging around $2.21/gallon and diesel around $2.49/gallon. I expect diesel prices to climb at least 10 cents and gasoline another 5 cents in the coming days before the weekend.

The propane situation is still not pretty. Supplies are not building and prices are rising. Retail prices have risen and will continue to rise. As I have been saying since May, please fill your tanks now and contract your winter usage. This propane season is continuing to look like a bad year for price spikes.

As always, if you have any questions, comments, or concerns, please feel free to give us a call.

Best regards,

Jon Crawford – Pres.
Crawford Oil and Propane

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