Good morning,
I was out of the office for a week and it’s amazing how volatile the crude market is right now. Two weeks ago we were just about to break back down below $60/barrel on WTI. Two weeks later we are sitting above $65/barrel! In fact, the last three trading sessions were the largest increases on WTI in trading since November of 2017. Most of this was driven by a surprise drawdown in crude inventory here in the U.S. as well as geopolitical tensions in the Middle East. Right now Saudi Arabia is demanding that Iran be curbed further from nuclear development or else they will develop a nuke. The Crown Prince is meeting with Trump to decide how to proceed with Iran. Some are thinking that the tensions could lead to sanctions on Iran and diminish Iran’s output causing world levels of crude inventory to go into deficit, riding the back of Venezuela’s significant decline. However, I do not believe that Iran’s customers would follow through with sanctions, considering that they like the current deal with Iran. Since Iran was agreed upon to open its doors for crude sales, China, India, and Europe are now buying more crude from Iran than ever before. With Iran’s steep discounts and trying to gain market share if possible, I do not see these countries following a lead by the U.S. in calling for sanctions. This is the largest geopolitical development since the middle of the Syria conflict when Russia and the U.S. got involved. Although I think this is significant news, I do not think there is enough “news” to push crude much higher. The inventory projections from both the EIA and IAA change every week. I agree with the thought that WTI crude will continue to trade in the $60-65/barrel range. However, my call of a “calm spring” for planting season is now a bit shaken. I am now urging some to cover costs in spring just a bit to be safe. And the last bit to remember is that we are coming to the end of Q1 and if crude prices hold, some traders might “ring the register” on a nice start of the year bump in profit and move money elsewhere. That would not be the first time we see the “selling in March” scenario.
In local retail news, gasoline prices have spike due to the change in RVP for summer. I believe that the retail price of $2.49/gallon will be about the peak for now. Where we go from here will all depend upon crude pricing. Diesel prices are jumping all over due to market volatility and street price volatility unwinding from winter blends. As with gasoline, the current prices will probably hold unless crude can find some legs and break out to the highest close of the year.
Propane has bounced back up off its lows with the increase in crude. We are still hoping to be able to lock in prices for next heating season very close to what we were at this year. Right now there is not much value in future prices until the market can digest this recent uptick in crude prices and the unwinding of winter heating demand. More information to come in the following months.
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