Wars?.. What Wars?..
Good evening and Happy Friday!
This week, crude oil completely traded on economic data coming out of the US and China. WTI Crude price was on the way to break through $90/barrel in October based on the never ending war in Ukraine and the continued developing war between Israel and Hamas/Hezbollah/Houthis. Instead, the markets turned a blind-eye and focused on company earnings, job reports, and the FED meeting/minutes. In addition, China’s economy is not looking strong and stimulus as well as bailouts for bankrupt commercial building powerhouses will be needed. All the released economic data combined caused WTI crude price to close at $80/barrel for the week! The FED decided to keep rates the same as expected, but left the door open for one more raise. New jobs added to the American economy were less than expected. Company earnings were not as stellar as most were expecting this week. And inventories of refined products in the US were interpreted as “bearish”. In addition to the never ending credit card debt piling up in America, cars are being repossessed at the greatest clip since “The Great Recession” and high mortgage rates are holding causing the housing market to cool. Overall, the fear of an economic slowdown caused crude prices to drop. Therefore, crude oil prices dropped as treasuries continued to remain strong and the strength of the dollar held. I am still bullish on crude oil prices but if WTI crude price falls much below $80/barrel, I see some future buying opportunities. And if WTI crude price was to really fall and hit below $70/barrel, I would take long positions on futures. I believe there will be world crude oil distribution issues that develop from the instability in the Middle East. We have plenty of spare crude oil production capacity across the globe, but I see the potential for destruction in world crude oil distribution channels. I guess we will see what November brings!
In local news, after our neighbors to the west (Minnesota, Iowa, etc) experienced tight diesel supplies that ended up raising the cost of diesel over $1.25/gallon compared to our market, now our market is paying more for diesel than our neighbors! Chicago spot prices on diesel closed 20 cents/gallon higher than the Group to end the week. Within four weeks, we’ve experienced over a $1.50/gal swing in diesel cost across the two spot markets. Gasoline prices continue to fluctuate, but are now balanced with the Group. However, the balancing caused differentials on gasoline in Chicago to rise, so consumers will possibly see a slight increase in gasoline price at the pump. I expect diesel prices to trade in the current range out of the Chicago spot market until harvest in the Midwest region is almost completed.
Propane prices traded in a very narrow range as an early cold snap in the Midwest and corn drying demand kicked in at the same time. The combo caused national supplies to draw more than expected keeping prices fairly firm. We still have the most propane in national inventory that we have experienced in years. I am not worried at all about propane supplies this winter. I do expect the occasional logistical issues with pipelines and delayed train car deliveries, but nothing out of the norm for propane in a winter season. We are well positioned for a successful winter propane delivery season.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford
Crude Oil Tug of War
Good morning!
Happy Friday! Well, again the tug of war on crude oil prices continued this week. WTI prices dropped from $90/barrel back down below $85/barrel and looking to move closer to $80/barrel. As I have been writing, I believe that WTI crude oil prices will trade in the $80-90/barrel range. The war between Israel and Hamas doesn’t seem to be throwing as much fear into the markets this week compared to last week. In addition, the US launched air strikes into Syria last night putting the US officially in the middle of the conflict. Even the strikes from last night did not cause crude oil prices to climb much higher. The big news of the week was that the US reported the highest GDP growth at 4.9% in the third quarter. Most would think that the report is great news of a healthy growing economy, but the devil is in the details. As the consumer looks to run out of cash going into the high spending time of the holidays, most large banks are now convinced the GDP bubble will burst. If the economy moves into recession, crude demand could drop. In addition, a recession in the US could cause contagion to other parts of the world. Therefore, the futures bears won this week on the crude oil trade. Throughout all the chaos, there was some positive news between China and the US. Xi Jinping met with a couple of US Senators and US Secretary of State Blinken expressing that there are thousands of reasons for the US to come together rather than grow apart. The willingness from Xi Jinping to push for reconciliation is a dramatic shift in China policy. Many believe that a summit between Biden and Xi will occur sooner than later. If the US and China are able to strike some trade deals that are transparent and manageable, then I believe China will inject cash bailouts into their failing real estate market. If everything falls into place between China and the US, the cooling tensions could spark a boost to both economies. A boost to both economies would cause an increased appetite for crude oil. Time will tell and we will see what happens next week. As of now, we are truly living on a week-by-week basis with the crude oil trade. There is so much volatility all over the world, and I don’t see situations calming anytime soon.
In local news, diesel cost has come down from their highs following lower crude oil prices. The spread in diesel cost between the Group and Chicago spot markets has settled down. Diesel supplies are starting to loosen up as harvest moves over the hump to the west. Gasoline prices have dropped as well following lower crude oil prices.
Propane price has remained fairly flat and moving a bit higher as winter economics continue to drive the vehicle. With an early cold snap on the horizon, I expect propane prices to remain firm independent from crude oil prices. You can still lock in your propane price for winter if you have not done so already.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford