Happy Thanksgiving!

Good morning!

I hope everyone had an enjoyable Thanksgiving Day!  Since the markets trade on low volume this week due to the holiday, much of the movements will not be realized until the start of next week.  As of now, the profit taking for the year is starting to take shape due to the emergence of a 10x mutated variant of Sars-Cov-2 compared to the Delta variant.  The world is taking notice.  Although the worst case scenario would be a significant step back, we would not be going back to ground zero.  However, the news was enough for traders to lock in the profits for the year that I’ve been talking about.  Even if the news on the variant comes back as positive in the coming weeks, I don’t expect crude prices to take off.  I think the news today was enough to pull a lot of hedge fund firms out of the crude trade, lock in gains, pay taxes at known rates, and move on.  The one event of the week that is affecting crude prices positively is the announcement of the Strategic Petroleum Reserve.  The SPR has only been used three times in our history to deal with global issues:  Persian Gulf War, Hurricane Katrina, and the civil war in Libya.  The previously mentioned events were a huge shock to the global supply chain.  The situation were are currently experiencing is not a supply shortage.  Producers are choosing to withhold product.  The SPR release announcement caused crude prices to trade HIGHER because of the inaccuracy of the need for the deployment.  The amount of SPR coordinated release changes nothing in the grand picture of global supply.  Either the world increases production or not.  There are not enough global reserves to dramatically tip the scales.  Next week is going to be very interesting to watch!

I do expect to see some relief on pump prices in the coming week.  How much is to be determined by how deep and how long the selloff runs.  

Propane price have lost a little strength over the past week.  Our retail price went down for the first time in six months.  I don’t expect to see prices drop too much as we go into the volatile portion of winter.  We escaped supply disaster due to low corn drying demand, but we are not out of the woods.  Periodic price spikes are continuing to lurk in the background.  In other words, I’m taking the recent downward price movement lightly.

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

Best regards,

Jon Crawford

Crude Trade Starting To Collapse?

Happy Friday!

As I have been writing for the past months, the crude oil trade is going to be very choppy until the end of the year.  All components of the trade were in place to keep prices high until the end of the year.  But since there is a massive profit to be gained at these current crude price levels, any strategies to push prices lower could trigger a quick sell to lock in gains for the year.  The foundation of the crude oil trade is based on OPEC+ continuing to withhold crude from the market.  In addition, Saudi Arabia raised their export prices for the end of the year.  I think the act of raising prices further, was a bit too greedy.  This week, Occidental Petroleum, the largest shale oil producer in the US said they would be willing to increase production to help lower prices.  They also said their strategy is to start coming back online fast in 2022.  The actions prompted the International Energy Agency to call a crude surplus in the marketplace starting in Q1 2022.  The announcements set off a selling frenzy as traders tried to lock in record gains in 2021.  OPEC responded by pleading with others that the strategy is working and to hold the course.  But then today, the Biden Administration is looking to work with allies to all release Strategic Petroleum Reserves and flood the market with oil.  The event would cause a crash in price.  And in addition to the US and their allies, China joined the party too, saying that because of rising prices and OPEC’s decision to cease offering discounts on their exports, China would also tap their Strategic Petroleum Reserve.  Crude oil prices are looking to close the week below $80/barrel for the first time in a while.  Could the end of year rally and 2021 crude trade finally be collapsing?  Possibly…. If the US, allies, and China keep their word and flood the market, $70 and below will be the target for WTI moving forward.  The move would be a welcomed inflationary relief going into the holidays.

In local retail news, prices are slowly unwinding from the highs.  However, I do not expect to see diesel prices at the pump drop too much since we are entering into colder weather and the cost of blending diesel with additives and #1 Diesel is entering into the marketplace.

Propane cost is slowly unwinding but with the winter contract cost differentials and lack of demand, I do not see retail prices dropping very quickly.  There will be caution going into the next few months with colder weather on the horizon.  However, the good news is that I do not see propane retail prices going any higher anytime soon.

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

Best regards,

Jon Crawford