OPEC+ Meets And Confuses Public Opinion
Good morning!
Happy Friday! The big news this week was the OPEC+ meeting on June 2nd. Traders were looking for guidance on how long production cuts will continue to be implemented. OPEC+ countries reaffirmed their commitment to existing production cuts. These cuts, totaling 2.2 million barrels per day (bpd) for the first half of 2024, are in addition to previous reductions of 3.66 million bpd, bringing the total cuts to 5.86 million bpd. Despite concerns over economic slowdowns in major economies, OPEC+ maintains an optimistic outlook on global oil demand growth. The organization expects demand to rise significantly, which will necessitate continued management of supply to balance the market and support stable prices. The possibility of winding down current production cuts in Q4 of this year is on the table. However, the Joint Ministerial Monitoring Committee (JMMC) will continue to closely review global oil market conditions and production levels every two months. The committee is also empowered to call additional meetings or request an OPEC+ and non-OPEC Ministerial Meeting whenever necessary to address market developments. The meeting highlighted the importance of adhering to the Declaration of Cooperation (DoC) and the Charter of Cooperation. OPEC+ plans to extend the current production levels and assess the situation using data from three independent sources to guide 2026 reference production levels. The markets interpreted the news as “bearish” and crude prices sank to the lowest prices in over a year. However, Saudi Arabia clarified on Thursday that the winding down of production cuts will only take place if the market is showing signs of an oversupplied market. The announcement poured cold water on the sell-off and crude prices rebounded. In addition, WTI price falling below $75/barrel triggered a massive repositioning in the options market. Traders showed signs of an oversold market and repositioned for WTI price to be back above $80/barrel at sometime in Q3.
The geopolitical risk for the commodities market continued to remain high this week as the war between Russia and Ukraine showed no signs of slowing down. Ukrainian forces reported downing 36 Russian missiles and drones targeting Kyiv. Russia launched approximately 20 missile and drone attacks on Kyiv since early May, intensifying their efforts to disrupt Ukraine’s preparations for a major counter-offensive. The international community continued to respond, with NATO emphasizing the need to prevent the conflict from escalating into a broader war between Russia and NATO. Additionally, Turkey donated a drone to Ukraine, funded by a Lithuanian fundraising campaign. The war in Palestine also showed no signs of slowing down. Although Biden announced a ceasefire plan to the UN, China and Russia are not in favor. China and Russia hold veto power. Therefore the chances of the resolution passing is slim. Families of Israeli captives held in Gaza have urged the Israeli government to accept this plan, highlighting the ongoing humanitarian crisis and the need for a peaceful resolution. The Gaza Health Ministry has reported that thousands of wounded Palestinians require urgent medical evacuation from Gaza due to the continued conflict and lack of medical supplies and facilities. Israeli forces conducted heavy artillery and helicopter raids in various areas of Rafah. These raids resulted in the deaths of several people and caused significant destruction to residential areas. This situation underscores the severe humanitarian toll the conflict is taking on the civilian population. And in a surprise announcement this morning, Houthi rebels unveiled a supersonic missile called “The Palestine” that can break through defense systems on the Red Sea. Many see the escalation will cause more attacks on ships on the Red Sea and prolong further supply disruptions. Overall, I still believe the geopolitical risks for crude oil prices outweigh demand erosion. I think Q3 of 2024 is going to be a very interesting quarter.
In local news, the EIA reported a crude oil inventory build of 1.2M barrels, a gasoline inventory build of 2.1M barrels, and a distillate inventory build of 3.2M barrels. The news was interpreted as showing signs of diminishing demand. Chicago spot market continues to hold excellent value compared to our neighbors in the West. Although Chicago spot barrels are cheap, any refinery disruption or hurricane will cause a massive spike in price. For now, everyone should take advance of the cheaper retail prices.
Propane prices continue to skip along the bottom. The EIA reported a propane inventory build of 2.5M barrels which was in line with expectations. Retail pricing of propane has great value. We believe now is a great time to consider filling your tank and contracting your propane needs for next year. Again, contracts for next heating season are cheaper than the previous winter. Almost no commodity futures are showing signs of lower pricing in 2025 compared to 2024. Feel free to call the office for more information.
As always, if you have any questions, comments, or concerns, please feel free to give us a call. I will be leaving on vacation soon and will not be having any updates for the next two Fridays. I should have the next update released on June 28th.
Best regards,
Jon Crawford
OPEC+ Meeting and Possible Slowing Demand
Happy Friday!
Crude prices ended the week lower compared to last week. OPEC+ will be meeting on June 2nd to discuss production quotas going into summer. According to their projections, global oil demand is expected to increase by approximately 2.25 million barrels per day (bpd) in 2024, driven by a strengthening Chinese economy and robust demand from other non-OECD countries. This growth in demand is anticipated to outpace the rise in non-OPEC supply, positioning OPEC to play a crucial role in balancing the market and influencing prices. OPEC also predicts that the call on its crude oil—the amount needed to balance global supply and demand—will be significantly higher than current production levels. The organization estimates this demand to be around 28.49 million bpd in 2024, compared to their December 2023 output of 26.7 million bpd. This indicates that OPEC’s supply cuts and production strategies will be critical in maintaining market stability and supporting higher prices. Furthermore, despite the possibility of an economic slowdown in the U.S., China, and Europe, OPEC maintains an optimistic view. They expect that ongoing geopolitical tensions, potential supply disruptions, and strategic production cuts will help sustain oil prices. Additionally, any economic stimulus measures, such as Federal Reserve rate cuts, could provide further support by devaluing the U.S. dollar, which typically boosts oil prices. This week, the Ukraine war has seen several significant developments. Russian forces have intensified their attacks, including a missile strike on an apartment building in Kharkiv, resulting in at least four deaths. Another missile hit first responders shortly after the initial strike. Moscow has also launched attacks using ballistic missiles and drones on various Ukrainian targets. Ukraine has launched drone strikes targeting Russian military infrastructure in Crimea. Kyiv’s forces claimed successful hits on the Kerch ferry crossing, causing significant damage. The US and Germany have allowed Ukraine to use their supplied weapons to strike targets inside Russia. This decision has escalated tensions, with Russia warning that such actions could lead to a direct conflict with NATO. Discussions about peace conferences continue, with China advocating for an inclusive peace summit recognized by both Russia and Ukraine. Meanwhile, European support for Ukraine remains strong, despite Russia’s criticism. Over the past week, the situation in Rafah has been marked by intense conflict and significant international response. An Israeli airstrike on a displaced persons camp in Rafah killed at least 45 people and injured hundreds. The strike targeted Hamas officials but resulted in high civilian casualties, drawing widespread condemnation. Israeli Prime Minister Benjamin Netanyahu described the incident as a “tragic mistake” and the Israeli military pledged to investigate. International leaders, including the UN Secretary-General and the European Union, have condemned the strike and called for adherence to international law. The Biden administration has also urged Israel to take all possible precautions to protect civilians during military operations. However, the Biden administration has concluded that war crimes have not been committed according to the United States’ definition. Overall, geopolitical events remain very volatile. For now, we wait for the results of the OPEC+ meeting and go from there.
In local news, the EIA inventory report for last week released the following information. Crude Oil: 4.2M barrel draw / Gasoline: 2M build / Distillate: 2.5M build. The report was interpreted as bearish due to the increased inventories of finished products. Chicago continues to be over supplied with gasoline and diesel. Therefore, with the possibility of decreased demand, the Chicago Spot market sold-off again. I expect to see prices at the pump drop a bit next week.
In propane news, the EIA inventory report for last week released information showing a 2.1M barrel build. The build was lower than expectations and exports were at the 3rd highest volume ever reported in one week. Propane prices are continuing to firm up as national inventories have now fallen below last year’s levels at this same time of year. Next season’s heating contracts have been released. I highly recommend everyone topping off their tanks at the current value of propane compared to crude oil price.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford