Tanking Dollar Causing Crude to Rise

Good morning,

WTI crude oil prices continue to rally on a tanking dollar thanks to the inconsistent comments by US Treasury Secretary Steve Mnuchin. The comments caused one the largest one-day drops in dollar value yesterday which in turn caused WTI crude to rally over $1. As the strength of our dollar declines, commodities such as WTI crude will rise in cost causing higher prices at the pump for gasoline and diesel. In addition to the tanking dollar, U.S. crude oil inventories declined for the 9th straight week. But there is much more to that story. U.S. inventory levels of gasoline and diesel are staying at high levels. Our exporting of crude is staying consistent at 1M barrels/day, but our production is increasing. Basically, we are warming up for a potential snap in crude inventories. If OPEC breaks from cuts or Venezuela ramps up production, there is not enough demand in the world to clean up the surplus. Pair that with the MOST hedge fund long positions EVER in WTI futures history, and we are setting ourselves up for a massive pop. I think $70/barrel on WTI will be the breaking point unless something happens sooner. The entire crude market feels like a boiling pot of water ready to boil over. Looking at technicals, I’m still seeing WTI crude around the $55/barrel mark. I am still holding my position that it’s only a matter of time before the hedge fund managers ring the cash register and move their money somewhere else.

In local retail news, as stated before, the tanking dollar is causing gasoline and diesel prices to rise. Diesel prices with proper winter blending are holding above $3.00/gallon, and gasoline prices are holding above $2.45/gallon on average. Unfortunately, I do not see any give on these prices until the dollar recovers or the futures positions exit the market.

Propane is on course to see lower prices in February if the temperatures stay warm. Right now prices are still well above contracts, so customers who contracted are saving money so far this winter. We are not making any predictions on propane prices for summer or fall of 2018 until we see some direction on the dollar and WTI.

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

Jon Crawford – Pres.

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