Happy Friday! Unfortunately, I don’t have much new news to report. WTI prices, as predicted, are holding at the $40/barrel level. I believe this in part to the upcoming election. When looking at the supply and demand fundamentals, the appetite for refined products in the US is starting to drop, but demand is increasing in other parts of the world where the coronavirus is not as front and center. So there seems to be a balancing act in the current state of economics. I believe that we will trade in a very narrow range through the rest of the year until the big OPEC+ meeting in January. The results of the election and the state of the coronavirus in America will all weigh on the OPEC+ decision. We will see if the election results give any bump in oil prices, especially if it’s a contested election. Other than the upcoming election, I still believe we are in a holding pattern.
In local news, gasoline retail prices are starting to drop now that gasoline supplies have returned to normal in the Chicago spot market due to the completion of some refinery turnarounds. Diesel cost remain higher as we move through harvest and the end of year construction push. However, diesel retail pump prices are extremely low right now in comparison to cost. There is great value for diesel customers in our local market at the pump right now based on historical data. I think that if the market continues to hold, diesel retail pump prices will have to jump back up above $2/gallon. There is now a disconnect again between the cost of gasoline and the cost of diesel coming out of Chicago.
Propane prices are the continued head scratcher. Propane prices are higher than anticipated even though inventories are robust and corn drying demand is low. I believe most supply hubs are keeping prices higher with the unknown winter ahead, but I still feel that propane prices are 5-10 cents heavy. We feel like if inventories are tight and corn drying demand is high, prices go up. And if inventories are ample and corn drying demand is low, prices still go up. Seems like no matter what, suppliers win in times of harvest. 🙂 If crude oil prices hold at the current level, I do think that there is a potential like last year for propane prices to drop in January and February of 2021.
As always, if you have any question, comments, or concerns, please feel free to give us a call. Thanks and have a great weekend!
Oil prices sold off earlier this week on surging coronavirus infections across the globe, lack of a US stimulus deal, and fears of demand erosion with an abundance of supply. The sell off was halted on Thursday when the US reported massive draws in crude oil and refined product inventories. The market really seems to want WTI to stay above $40/barrel. Even though fundamentals are quite bearish for crude, there are many qualitative factors affecting crude prices. We have the Presidential election coming up, rising coronavirus infections, world wide reports of vaccines from multiple countries, and overall anxiety about what the future holds. The anxiety of the unknown drives volatility in unexplained ways. I would say that right now emotions are driving much of the markets and until the Presidential election is behind us, it’s going to be a bumpy ride. Markets will still be volatile after the election, but we we will have at least one of the “unknowns” checked off the list.
In local news, retail gasoline prices are holding near $2/gallon and diesel prices on average are above $2/gallon. I do not see much relief in diesel prices until after the fall harvest. So far, the harvest is going smoothly and quickly. I expect harvest to be mostly completed by early to mid-November.
Propane is the biggest headscratcher of all commodities I follow. Prices have climbed dramatically and quickly going into winter index economics. Although propane inventories are at record levels and corn drying demand is the lowest in many years, prices are holding steady. Propane prices feel very, very heavy and unless the cold snap holds for the next month or so, I don’t see propane prices holding at these current levels.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.