Crude Prices Have A Fever of $100/Barrel

Good morning,

As you may have noticed, the price of fuel has been rising at the pump.  As the sanctions against Iran are getting closer to kicking in, traders have caught a nasty fever.  The fever of the magical $100/barrel crude price is on and traders are putting their money where their mouth is.  Right now, the net long positions on crude oil futures hit historic levels again.  This week OPEC and Russia reminded the world that the Iran sanctions were put in place by the U.S., not them.  Therefore, they are a bit reluctant to come out and rescue the world from higher prices.  However, many believe that Russia and Saudi Arabia are secretly putting more oil into the market leading up to the Iran sanctions in November.  Under the current market conditions with the Iran sanctions coming, I do believe that Brent prices could touch $100/barrel in the coming months.  But I’m also a huge fan of history.  Every time we see this amount of hedge fund money pour into crude at a frantic pace, a correction is around the corner.  And in recent years, the correction comes sooner than later.  I believe that by the end of November, there is a potential for prices to unwind, especially by year end as traders take profits on the tax breaks based for this year.  Unfortunately, this means that high prices at the pump are probably here for at least two more months.

Retail prices on gasoline and diesel are climbing not only due to the rise in crude prices, but also because of refinery maintenance at facilities in the Midwest causing supply constraints.  I believe that gas prices will stay under $3/gallon and diesel prices under $3.49/gallon for a bit here.  But if the $100/barrel fever doesn’t break in the coming weeks, at the end of the month we could see gas prices breaking $3/gallon and diesel climbing over $3.49/gallon.

Propane prices continue to baffle me.  Inventories across the country are at the same level as last year.  But the cost ratio of propane to crude oil is low.  Corn drying demand is low and much of the tobacco crop was destroyed out east.  So for now, propane prices will remain stable, but any demand event could cause a large spike in price.

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

Best regards,

Jon Crawford – Pres.

Quick Update

Good afternoon,

I’m sorry to bring bad news on prices going into the weekend.  Prices are continuing to dramatically climb due to a rise in crude oil prices.  The rise is being blamed on upcoming Iran sanctions going into affect the first week in November which has the potential to cause a global deficit in crude supplies.  In addition, there are major issues with refinery and pipeline maintenance in the Midwest.  Prices for diesel and gasoline are in a 15 cent spread at most terminals throughout the state.  In addition, the only pipeline bringing product into Madison will be down for 10 days in October.  I expect to see retail prices at the pump continue to climb for both gasoline and diesel.  The high prices will remain until the maintenance season is over in mid-October.

The timing is awful with farmers starting to harvest.  If demand picks up we could see differential price blow outs push this dramatically higher.  The cold temps are also ticking up propane demand which is set for a price jump as well.

Unless crude oil drops $5-10/barrel, I would expect to see current prices on all refined products to stay high for another 3-4 weeks.

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

Best regards,

 

Jon Crawford – Pres.