Some Cold Water on the Rally

Good afternoon,

Last week crude oil prices skyrocketed based on Saudi Arabia causing unrest in the Middle East, the OPEC forecast for increased demand in 2018, drop in U.S. inventories, and talk of OPEC keeping the current cuts on the book until the end of 2018. Long positions on crude entered the market last week in record numbers and caused panic buying to push WTI price above $57/barrel. Most of the news agencies and pundits called for $60/barrel by the end of the year. I was a bit skeptical of how fast we moved, but I did write that if what was discussed last week were true, then yes, $53/barrel in WTI might be then new bottom action for price. Well, what a difference a week makes. This week, the IEA came out with their demand forecast. Their numbers are 600k barrels/day lower than OPEC’s forecast! The discrepancy is very notable and put many investors on their heels. In addition, the U.S. incurred over a 5MM barrel build in crude oil. I was concerned that possibly we were still catching up on post hurricane production. Clearly, we were still catching up. Also, the U.S. added more rigs to the production picture and will probably break the daily barrel/day production level record by year’s end. The IEA does not see where demand will outstrip production in the first half of 2018, even with current cuts in place from OPEC. That being said, even if OPEC continues with cuts as is, future prices will not be greatly affected. The news this week put a quick cooling to the rally. In fact, WTI has the potential to fall back below the support price of $55.barrel by week’s end! OPEC now has some major thinking to do because just extending cuts might not be enough to keep Brent above $60/barrel.

In local retail news, gasoline prices have finally eased back below $2.49/gallon. Diesel prices are now well below $2.99/gallon. The Chicago market is continuing to give back it’s earlier gains from supply disruptions. I expect to see prices fall a little bit more into next week, which is good news for the Thanksgiving travel week.

Propane prices have actually climbed a bit in the past week. With current cold weather and the highest demand for corn drying in five years, propane supplies were tight and prices followed suit. We are now at the highest delivery price in over two years. If warm weather and crude prices ease by month’s end, we could see a little relief on price in this recent propane rally.

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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