Well, not much has changed since last week. The news on the open market is fairly calm. However, hedge fund managers are enjoying making their predictions of where WTI might head this year. My feelings are that WTI is over bought. There has not been this much hedge fund money on long position in the crude market since 2013. No wonder all the news is trying to “push” the market higher! I’m not sure without a major even there is much steam left in the crude rally. Russia is starting to float the idea of leaving the OPEC deal. When that event would occur is up in the air. Possibly at the June meeting or sooner is my guess. Now that prices of crude have gone higher than anticipated, I am watching for someone in OPEC to start the old fashioned cheating game. In addition, if we can make some moves to get the strength of our dollar moving positive, crude will also face another headwind. Even though crude inventories continue to fall in the U.S., production is starting to grow again. Finished product inventories are above average, and I expect to see some builds in crude inventories soon. I’m just not sold that we are truly at these prices based on current market conditions. I guess time will tell!
In local news, gasoline prices bumped up a smidge due to local Chicago market differential jumps. Diesel prices have continued to remain in a tight range. Propane prices ended up climbing a small amount due to some unanticipated supply disruptions. However, due to the warmer weather and forced allocations, supply is starting to ease back to normal. I am thinking that we are at about the peak price for the year. As I have said before, if warm weather continues into February, I expect to see propane prices fall. Exports of propane are not holding up to what was expected and demand is actually off a bit.
As always, if you have any questions, comments, or concerns, please feel free to give us a call!
Jon Crawford – Pres.
Well, the stock market exuberance bug seems to have found its way into the crude oil market. Crude prices continue to climb with bearish fundamentals forming. At the moment, geopolitical tensions have eased in major oil production areas. Asia has cut imports on crude due to high costs. This will cause imports of refined product to increase, but the world is very rich with refined product at the moment due to great refining margins from the U.S in particular. The U.S. continues to move in the direction of more production and increasing refining capacity. Also, the fundamentals on the crude oil charts are shaping up exactly as they did in September 2014 right before the November bloodbath sell off. The ratio of long positions versus short has hit levels not seen since 2014. Therefore, the recent rise in price is based somewhat on an emotional movement. We all know that OPEC will not extend cuts any further. And some members are starting to complain that prices are now TOO high. Imagine that! So the first person to blink in the coming weeks could trigger up to a 15% sell-off in my opinion. Personally, I believe that WTI crude oil is about $10/barrel over bought. I’m thinking that February could be an interesting month. More to come on this in the following weeks and month.
As crude prices continue to climb, prices at the pump are following. Since the start of the year, base cost on gasoline has increased almost 9% causing gasoline prices to move towards $2.39-2.49/gallon. Diesel retail prices have also climbed, especially as winter blending elements such as #1 ULSD have increased in premium. Diesel retail prices for the most part are over $3.00/gallon.
Propane prices have steadied since the three week cold snap. Propane exports are looking to dry up in February due to cost fundamentals and lack of demand in Europe. There is now a possibility of seeing propane retail prices drop in February. It’s amazing how fast the propane situation can change since we now can export up to 1MM barrels/day of propane. If the exports dry up, we can build inventory quite quickly if the winter is mild. The exporting game has become quite the wild card in the U.S. propane trade.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Jon Crawford – Pres.
Crawford Oil and Propane