Lots of Noise, No Movement
Good morning,
Crude oil ended the week with little change in price even though the headlines were packed full of influential data. On the geopolitical front, Iran captured a ship from the UK, claimed to have caught US spies in Iran, and threatened the rest of the world’s Navies to stay out of the Persian Gulf. In the past, these types of incidents would have triggered a 10-15% premium increase on crude prices. But this week, the news did nothing to move the thermometer on risk premium in crude prices. I believe this is because the risk of supply surplus is winning in the minds of traders. Demand erosion is continuing. This week, even after the largest reported for the year draw-down in US Crude Inventory, prices barely moved. The lack of movement is because crude is being exported but not necessarily delivered. Ships of crude oil are starting to appear without a home. The scenario starting to form has caused much pain on prices in the past. In addition, China’s economy seems to be cooling and the US is not far behind. I don’t think recession fears are on, but maybe a pullback. But any pullback in demand when production is at an all-time high, even with cuts in place from OPEC+, any movement to surplus will form a global glut in crude oil inventories and cause prices to crash. I actually believe that if OPEC compliance does not continue through the end of the year, we have a risk of WTI crude prices plummeting below $50/barrel to start 2020. And I don’t think that low of price would slow down the US production. I really think we need to experience WTI prices closer to $45/barrel before we see US production dramatically slow up. For now, it’s possibly sideways movement on crude prices until end of summer.
In local retail news, as I was writing last week, retail prices peaked and have come down like expected. I don’t expect prices to drop much more at the pump though. However, it’s better than an increase during summer travel!
Propane prices continue to stay very low with high volumes of national inventory. Please take advantage of these prices and fill your tank. We will deliver below the minimum requirement during this time to try and help everyone save some money! We also suggest that you contract your propane for this coming winter. The contract prices are lower than last year and are a good value.
If you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford
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