Crude Prices Holding Steady
Good morning!
Crude oil prices continue to trade in a very narrow range based on the news of the day. We seem to be bouncing along between $51-53/barrel on WTI. I continue to believe we will stay in this range for a bit longer. Refineries are making great money right now so supplies are ample. But crude and refined exports to China are starting to show up again, so possible relief on trade tensions are being discussed as well. Basically, as the US floods our local markets with additional refined products coupled with record crude harvesting, and as long as there are buyers, prices will stay steady. If the US refineries hit a hiccup in production, crude oil inventories could build quite quickly in the US. But OPEC, particularly Saudi Arabia, are drumming up continued support for their cuts and are offering side deals to anyone in the world that wants to work with them to help keep prices higher. Canada is also joining in the party with cutting production. Russia is slowly cutting back on production as long as prices don’t go up too fast. The biggest area of concern for the year is the world economies. If economies stay healthy in 2019, then I believe we have experienced the bottom in prices for the year. But if we start to slow down demand for oil, I’m not so sure OPEC can cut fast enough to deal with the record production here in the US. So as the last few weeks have been, it’s a “be patient” scenario. I still believe that hedging diesel supply for the future months is a smart hedge. Diesel inventory levels are lower than the five year average and if crack spreads decrease, we are going to run into some supply constraints later in the year. In addition, the new IMO standard for marine fuel starts in 2020 and is going to push up prices due to production cost increases.
In local retail news, gasoline prices are trying to push back up above $2/gallon. Cost has increased enough to justify pushing prices back up over $2/gallon, but retailers are hesitant to give in. Diesel prices have increased a little, but hold on to your seats. Diesel cost is 25 cents/gallon lower out of the Chicago Spot market due to insanely great crack spreads. Once we have a production issue or a drop in supply, diesel prices in our local market are going to sky rocket.
Propane prices are holding steady with demand increases due to cold weather. Our prediction services are calling for very cold temps the rest of January and possibly all of February. So for now, we are preparing for increased demand in the coming weeks. Please make sure an icy driveway is salted or sanded and that there is a clear pathway to your tank to make sure we can safely and efficiently deliver.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford – Pres.
WTI Crude Back Above $50/Barrel
Good morning,
Well, that didn’t take long! WTI Crude price climbed back above $50/barrel this week and looks to close above for the week. Signs of progress on the China/US trade war seem to be coming to fruition. In addition, economic data in the US seems to be better than expected with retail sales strong and jobs hiring on the rise since December. Furthermore, Saudi Arabia cut more than expected in crude production for December and announced that they are willing to shed market share to increase prices. Saudi Arabia also floated the possibility again of an IPO for Aramco in 2020. The announcement is meant to give support to their position of wanting higher crude prices. Back at home, the FED is starting to take a softer position on rate increases for 2019 which caused the stock market to climb along with energy prices. So for now, the bottom on WTI seems to have been carved out at around $45/barrel. There are still some bearish scenarios floating around the marketplace. China’s economy is murky at best. True data is hard to find so time will tell if the economic giant is truly in troubled waters. The US production of crude has soared past 12M barrels/day. With OPEC cuts and healthy demand, the production levels in the US are not a damper on prices. But if China truly is slowing down or something changes in the US economy, crude prices could tumble back down quickly. In other words, volatility is going to be the name of the game for crude in 2019. Major banks are changing their forecasts on crude prices every other week by as much as $10/barrel swings. In other words, nobody knows. It’s a big guessing game this year. My advice, buy some upside price protection if possible at these current values.
In local retail news, prices of gasoline are starting to climb. We have seen cost increases come to both gasoline and diesel. In fact, diesel is set to rise almost 20 cents/gallon at any moment! Our Chicago market spot prices are well below the rest of the markets East of Rockies. It’s not a matter of “if”, but “when”. My advice for those larger diesel customers is to fill up your tanks now and keep them full.
Propane prices are also starting to climb again with the rise of crude prices, but not as fast. We need to see some cold weather push demand to over 2M barrels/day consumption for propane prices to really rally. For now, prices are good and supplies are ample. As a reminder, please make sure your driveway is plowed and sanded/salted if needed. And also to be sure there is a clear path to your propane tank to ensure a safe and efficient delivery.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford – Pres.