Crude Prices Become a Falling Knife

Good afternoon,

Well, May officially became the worst performing month for WTI and Brent in the last six months.  Not only did the China trade war heat up to a new level this past week, but Trump sent a shock wave to the markets this morning with an early morning tweet announcing tariffs on Mexico.  WTI crude officially fell through the support level of $57/barrel and will now try and target $52/barrel.  Without any change in tone or action on the trade front, I believe that WTI is finding a new home under $60/barrel for a while.  In addition, China’s manufacturing data was weak, showing that maybe the trade war is slowing the second largest economy.  However, there are some geopolitical developments that could cause a pop in price.  In Libya, infighting is continuing and on the verge of another civil war.  If this happens, crude exports could be shut off to zero.  And most market analysts will say that none of this current conflict is priced into the market.  Also, China is about to receive a shipment of Iranian crude which would violate sanctions.  But countries are already figuring out ways to get around the sanctions.  And, major hedge funds have not only left their long positions in crude, but also their short positions!  Basically, “Big Money” is exiting the crude trade.  So for now, crude prices are in free fall.  What a difference a month can make!  The wild ride of crude oil prices has been the most volatile I’ve seen in a few years and I don’t see the pattern changing anytime soon.

In local retail news, terrible flooding in the Midwest has not only eroded demand but also put major bottlenecks in supply chains.  Prices out of the local Chicago and Group markets spiked to their highest differentials in years.  But prices are starting to ease as the bottlenecks are being worked out.  I could see prices at the pump starting to retreat in the next week.  Diesel prices are slowly coming down as well.  The US remains very strong in supplies and not much out their for major supply shocks at the moment.

Propane prices continue to stay very low.  In fact, we are currently at the lowest retail price in almost three years.  I strongly suggest that everyone fill their tanks at these prices.  There is a greater risk of prices going up from here rather than going lower.  Contract prices for next year are shaping up to be cheaper than last year and will be released in the coming weeks.  Stay tuned for more info on contracts.  But in the meantime, fill your propane tank!

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

Best regards,

Jon Crawford

Trade War Jitters Are Winning

Good afternoon!

Although news of unrest in the Middle East continues to ramp up in reporting from news outlets, the fallout from the trade war between the US and China is winning out on the battle to move crude oil prices.  Crude oil prices have relaxed from last week highs and are now moving closer to the lower leg of recent support values.  WTI is moving closer to $59/barrel which is the current floor.  Today the EIA reported large builds not only in crude oil inventories but also in gasoline and diesel inventories.  The builds were surprising considering that refinery utilization was low and crude production dipped just a bit.  For now, as long as the temperature in Iran does not heat up anymore, crude prices are losing some support.  In addition, hedge funds moved out of long positions and are now at the lowest ratio of long-to-short since last year.  In other words, hedge funds are putting their money on cheaper prices later in the year.  I gotta say that the first five months of this year has been one roller coaster of a ride for the crude oil markets!

In local retail news, Chicago spot prices finally fell back down in line with Group spot.  I expect to see retail prices on gasoline continue to drop just a bit.  I was not expecting to see a drop before Memorial Day, but I think the consumer will see a little relief.  Diesel prices are holding more steady on good demand right now.

Propane prices continue to drop with large national inventory builds and a huge stockpile compared to last year.  I don’t see propane prices falling off a cliff, but I think the current spot prices of propane will be here for quite some time this summer.  If you own your own tank, retail prices are now under $1/gallon!  If you can hold any propane I strongly recommend purchasing at these values!  Contract prices for next season will be released closer to July 4th.  Stay tuned for more info!

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

Best regards,

Jon Crawford