Up, Up, And Away!

Good morning!

Happy Friday! I took last week off due to Spring Break. Unfortunately, the crude oil market is finding lots of support to continue the run higher in price. The war in Gaza escalated this week as Israel not only targeted the Iranian Embassy in Syria, but also mistakenly killed aid workers in Gaza. The geopolitical risks for higher crude prices kicked into full gear as expected. The US economy continues to run hot and calls on the FED cuts are all over the map. There is no consistency on if/when FED cuts will take place. The US crude oil inventories increased this week. However, gasoline and diesel inventories dropped. The report was interpreted as bullish. However, most of the refined products are being exported. The US economy seems to be healthy, but there are headwinds as cash/credit tighten with the consumer. If consumer spending starts to drop going into the summer, we could see a pull-back in crude prices. To add additional fuel to the bull-fire, OPEC+ met online and decided to keep cuts in place. Algeria and Iraq continue to pump over quota, and Venezuelan crude will find a home potentially in China. Russia’s exports have fallen, but the drop is temporary. Saudi Arabia announced this week that they are unable to meet their 2030 vision goals at the current rate of investment and crude oil sales. Although Saudi Arabia wants WTI crude oil to be closer to $100/barrel, the possibility of the Saudi’s increasing production moves onto the table if competition continues to take market share. I continue to sit back and watch everything play out. We are approaching a very intense presidential election in the US. If WTI oil continues to climb and hit $100/barrel, voters will be inclined to take out the “pain at the pump” on a sitting President. In my opinion, Biden will do everything in his power to try and lower oil prices going into November.

In local news, diesel prices have moved much higher with the increase in crude prices. Gasoline prices have remained fairly flat. The Chicago market seems to be sending a message that they are over-supplied with gasoline. We are starting to approach hurricane season and NOAA is calling for an intense and jam-packed storm season. The potential for “mini-blowouts” in basis pricing is on the table this summer and early fall.

Propane prices have moved higher in tandem with crude oil prices. However, propane cost has not moved higher at the same percentage to crude oil price movement. Summer fill season is right around the corner, and as customers finish up their contract pricing from the current season, they are pleased to hear the current retail price of propane is lower. Next year’s contracts will probably be coming out in May sometime, so more to come. Oh, and this current winter is now running at 12% warmer than last year, breaking the record for the warmest winter EVER!

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

Best regards,

Jon Crawford

Taking A Breather?

Good afternoon!

I am writing my update early since tomorrow is Good Friday and most oil traders take the day off. Crude oil prices continued to rise at the beginning of the week. Ukraine continued to bomb Russian oil refineries forcing Russia to cut production. Iraq and UAE had troubles making production quotas in February. The EIA reported another draw in crude oil supplies in America. China’s economic data started to show signs of life. And the CERAWeek conference in Houston discussed how crude oil demand will continue to increase over the coming years. In addition, if AI truly takes off across the globe, our world energy usage could increase anywhere from 25-50% globally! The numbers are absolutely bananas! The harvesting of crude oil and natural gas will have to increase in order to supply enough energy. We just do not have enough alternative energy sources, nor can we build alternatives fast enough. However, after WTI prices hit the highest price again in many months, a short pause landed towards the end of the week. The FED decided to hold rates. The EU is holding rates. The strength of the dollar remains high. The strength of the US Dollar puts strong downward pressure on crude oil prices. In addition, the potential economic collapse in the commercial real estate market is starting to take shape. As previously discussed, the majority of all commercial real estate loans are held by small to midsize banks. Commercial property values have fallen as much as 50%+ over the last year or so. The use of Commercial Mortgage-Backed Securities (CMBS’s) has rocketed over the past years and now loans are coming due. Basically, what happened in the great housing collapse of 2008 is starting to happen in commercial real estate. The potential for a major collapse is producing economic headwinds in America. There is also some light starting to shine through for a possible ceasefire in Gaza. Many groups and representatives are talking. Hopefully there could be a deal in the place over the coming week or so. At the end of the week, the crude rally finally paused and took a breather. WTI Crude price relaxed a bit but is still remaining above $80/barrel. There is a potential for WTI price to fall back below $80/barrel, but I am still bullish on crude oil prices in the near term based on market fundamentals and geopolitical issues. There is still the possibility of a contagion sell-off in Q3 through Q4 of this year. For now, sit back and kick your feet up for a bit. It’s nice to catch your breath every now and then. 🙂

In local news, the Chicago spot market finally started to sell-off basis differentials and move closer inline with Group prices. Therefore, I believe we might have peaked on refined prices in our Chicago spot market. We could start to see retail pump prices come down next week if the crude breather continues.

Propane prices held fairly firm this week. Propane price mostly followed crude. However, we are building national inventories a bit earlier than normal, so the potential for prices to fall later in the year could take shape. Basically, prices could slowly rise all summer and into the fall. Then if there is weak corn drying demand and a warm start to the following winter, prices could sell off. We had this happen the year prior. During the 2022-2023 season, the highest price for propane ended up being in the summer! I believe it’s still to early to hedge your bets with propane. Let’s first try and get through this warmest winter on record, and then see where we sit when the dust settles at the end of April.

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

Best regards,

Jon Crawford

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