Small Black Swan Event
Good morning and Happy Friday!
I first would like to wish all the deer hunters safe travels this weekend and a safe hunt next week. 🙂 This week, WTI crude oil experienced a small “Black Swan” event on Thursday and dropped as much as $4/barrel. Large US retailers released lackluster earnings and weak guidance going into the holiday season. The news spoked many traders to clear positions, book some profit, and maybe buy back in before year end at a lower price. The contagion of demand destruction also spread after Biden’s and Xi’s meeting failed to produce meaningful trade agreements with the US’s largest enterprises. However, the news of yesterday also reinforced the idea that the FED might cut rates sooner. If the FED cuts rates to spark consumer demand, crude oil prices could rally. A weaker dollar, coupled with increased demand would make crude oil more expensive. Regardless, Saudi Arabia is keeping a close eye on the market. Although it looks as if WTI crude oil price will post four straight weeks of loses, I do not see Saudi Arabia letting the price collapse. I still believe there will be one or two more mini “Black Swan” events that could pull WTI crude oil price below $70/barrel for a brief time; even as short as one day. There was a lot of buying/selling liquidity in the market yesterday, so clearly any events such as yesterday will spark massive trade volume. I am still long on crude oil prices for next year, but believe there will be one or two more events like yesterday between now and end of January as traders look to book year end profits and buy back in at a lower hold price for next year.
In local news, Chicago diesel spot differentials finally collapsed and are now lower than our neighbors in the Group spot market. I expect to see retail diesel prices drop in the coming weeks. Gasoline came down a bit as well. I do not expect to see a jump in gasoline prices prior to the holidays. Many economic forecasts are sending signals of weaker travel plans this holiday season.
Propane is truly carving out and skipping along the bottom. Propane prices have not dropped at the same percentage rate as crude. As I wrote in the past, propane is trading at the lowest percentage to crude in years, so the markets are just letting the price of propane catch up to normal crude percentage economics. I really don’t think propane producers are going to produce propane much cheaper this season. Especially with calls for the warmest winter on record…again.
As always, if you have any questions, comments, or concerns, please feel free to give us a call!
Best regards,
Jon Crawford
Bears Were Hungry, But The Bulls Formed A Strong Defense
Good morning!
Happy Friday! Again this week, the news of terrible economic data poured out over the news wires. The stock market ripped as traders looked for places to possibly make more money than long-term treasuries/bonds. China’s exports continued to dwindle. The EIA lowered their demand forecast for 2023. Chairman of the Fed Powell said that they are not done fighting inflation. Overall world economic slowdowns were reported. And Russia announced that they will lift their ban on refined fuel exports. Russia exports the most diesel in the world. The combination of all this data caused WTI crude to fall below $75/barrel for a brief moment. $75/barrel WTI has not been hit since July. As I have been writing, if WTI gets close to $70/barrel, I believe that is a good place to start slowing dipping toes into future crude purchases. This morning, Saudi Arabia announced they believe the economic slowdown is “overhyped”. The news was interpreted as Saudi Arabia will do whatever it takes keep prices higher. As their Sovereign Wealth Fund reported economic gains this past month, their strategy of keeping crude oil prices higher and selling less oil is working. I do not see Saudi Arabia changing their strategy anytime soon. In fact, I believe they will cut more production if necessary. As they also enter the LPG export business for the first time this year, a new revenue stream will flow into their economy. At the end of the day, I believe there could be a “black swan” event once the American consumer’s back is truly broken economically, which in turn will produce a nice futures buying opportunity for crude oil. However, if the event does occur, Saudi Arabia and even other oil companies outside of OPEC, including American companies such as Occidental, will cut production quickly to keep prices from free falling. As I have been writing, I am still bullish on crude oil prices long term, and one should be patient for the short lived opportunities that will most likely present themselves in the coming months and into 2024.
In local news, diesel prices out of the Chicago spot market continue to be inflated compared to our neighbors in the Group spot market. But I believe that once harvest winds down, we will see diesel prices fall back into the normal trading range out of Chicago. Gasoline prices fell this week in tandem with the price of crude. Gasoline is tracking crude oil prices very closely.
Propane continues to trade narrow and is ticking up a little bit in price due to demand increase. As a reminder, please keep your driveway clear and salted in the winter, and a clear path to your tank. We want to ensure safe and efficient deliveries. It’s hard to believe that snow is right around the corner!
As always, if you have any questions, comments, or concerns please feel free to give us a call.
Best regards,
Jon Crawford