Demand Erosion In The Lead

Good morning,

Despite continued tensions with Iran, demand erosion is winning on directing prices of crude oil.  WTI crude fell from over $60/barrel posting last week to now just over $55/barrel.  China has posted terrible economic data.  But we always need to remember that those numbers are not always trustworthy.  In addition, oil tankers from West Africa have been found in the ocean without a home.  In other words, buying is starting to slow down, even though OPEC+ has taken 1.2M barrels/day off the table.  If world demand truly slows down, then we might see crude prices drop another $5/barrel!  I am absolutely stunned at the lack of interest in traders biting on geopolitical issues right now.  With all the turmoil surrounding Iran, the data must be very convincing showing as long as the US continues to pump at current levels and world demand continues to decline, the oil market will move into surplus again, even with all the current OPEC+ cuts in place!  The next six months are going to be very interesting to watch.  If WTI crude breaks through $54/barrel, then we have a shot at seeing the floor fall out back down to $49/barrel.

In local retail news, gasoline and diesel prices have peaked following the landfall of hurricane Barry.  All oil fields have restarted and prices relaxed.  For now, I think we have experienced the highs for the month of July.

Propane prices continue to remain very low.  Propane continues to trade with crude oil, so if crude prices stay low and propane production stays strong, we should have robust inventories for the winter.  However, because propane prices have now fallen into competitive spreads against natural gas, petrochemical companies are starting to bite on stored propane in the south.  If crude prices stay low, I could see petrochemical companies taking a huge chunk out of inventories in the coming six months.  In addition, if corn drying demand is strong, we could see a further draw on inventories.  I do not believe that we will see major price spikes by Thanksgiving, but if the winter is very cold, we could start to see prices spike after Christmas into 2020.  If you have not filled your propane tank this summer, please do so!  Contracts for next heating season are also available.

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

Best regards,

Jon Crawford

Hurricanes, Iran, the Fed, and More….

Good morning,

Crude prices went on a wild ride this week with a frenzy of information.  Iran apparently tried to intercept another crude oil ship in the Straight of Hormuz.  Iran is denying the accusation, but the UK is adamant that their navy fended of some of Iran’s Revolutionary Guard’s ships.   Back at home, crude oil inventories decreased again by a whopping 8M barrels.  Then the FED gave notice that rates cuts are back on the table causing the Dollar to drop in value, which increases the cost of crude.  Then, the Gulf of Mexico is preparing for Tropical Storm Barry.  Shut downs of crude harvesting in the Gulf were announced mid week.  But then a big piece of bearish news came out of OPEC yesterday which stalled the rally.  OPEC believes that oil demand will drop in 2020 and a potential for a crude oil surplus at current production levels is possible.  And then forecasters lowered the potential destructive impact of Tropical Storm Barry.  So we started the week back below $60/barrel crude on WTI and ended the week back above $60/barrel on WTI.  Wild ride this week!  As always, we will continue to monitor headlines and see where these recent developments take us next week.

In local news, I would prepare for higher prices at the pump.  Gasoline costs have risen compared to the retail price.  Most stations in our surrounding area are selling gasoline at or below cost.  As we continue to hold higher costs, eventually retail will catch up.  I expect to see 2.69-2.79/gallon on gasoline retail in the coming week.  Diesel cost has increased as well and I expect to see diesel retail prices climb a little.

Propane prices have continued to remain very, very low.  If you have not filled your tank for the summer, I recommend doing so sooner than later.  We have also released our contract prices for the next heating season and can help you with choosing which option is best.  Please call our office for more information.

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

Best regards,

Jon Crawford