Crude Oil Prices On A Stair Climber
Good morning!
Happy Friday! Crude oil prices continue to climb higher even though recession fears in the US and China linger in the background. I believe that traders are buying into the idea that oil producers in OPEC+, including the US, are being very disciplined with their harvesting and capital expenses. Everyone would rather sell less oil and make more money than gain market share from a competitor. As all oil companies look to diversify their businesses, the action of “flooding the market” seems to be off the table. WTI crude oil prices broke through $75/barrel this week. As I have been writing, I do not see a scenario where WTI prices hold under $70/barrel. American producers will cut production to keep prices higher if WTI starts to drop dramatically. The war in Ukraine is continuing to put pressure on Russian crude oil sales, but as long as China and India continue to purchase Russian crude, we shouldn’t experience any major spike in price. We will probably continue to see WTI price ebb and flow between $70-80/barrel. In addition, Saudi Arabia announced further cuts on shipments to the US East Coast. The move will put pressure on the Gulf Coast and Chicago markets to move barrels east. The scenario will eventually cause a spike in refined products in Chicago and the Gulf Coast due to higher demand for diesel during harvest and supplying the East Coast. Although recession fears continue to dominate the news, I would not relax and bet on crude oil prices dropping through the floor.
In local news, refined diesel prices out of the Chicago market are hitting the lowest cost of the year. But the devil is in the details. Chicago diesel is trading over 30 cents/gal under the Group and East Coast markets. Chicago has the ability to move barrels to the East Coast markets. I believe there is a “head fake” going on. In other words, what’s going on in Chicago will probably be short lived and diesel prices will jump much higher at some point in the near future. The futures on diesel out of Chicago are much higher and off the lows of back in January. Gasoline prices continue to remain in a narrow range and I don’t expect to see pump prices on gasoline drop much in the near term. Diesel retail prices might drop, but most retailers will use caution because the cost could jump much higher on any given day.
Propane prices continue to climb higher. We are at the lowest retail price of the year, but if crude prices continue to climb higher propane prices will follow. We highly recommend all customers top off their tank right now and contract for the upcoming heating season. Remember that you have until the end of August to lock in your price.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford
Our Friend Volatility Will Return At Some Point
Good morning and happy Friday!
WTI crude oil prices continue to trade in the narrow range of around $69/barrel and $71/barrel. The continued hot US economy is pushing treasury yields higher. And Saudi Arabia announced their cuts in production will continue indefinitely to keep WTI price above $70/barrel. Saudi’s are cutting shipments to the US as well which puts pressure on crude oil producers to move barrels east. Quite honestly, the crude oil trade is fairly boring these days. Although, we did have a longer holiday weekend with low volume trading on the market. The US is trying to make peace with China, but India is stepping up to the plate to fill the gap of cheaper labor and production in the world economy. There is definitely a shift in the world economic order taking place, but the resolve will still take a long time to play out. Oh, and there is still the war in Ukraine that is not showing any signs of slowing down. The US has a presidential election coming up. I believe that the next election will be one of the hottest elections in years. We are dealing with the most issues at home and abroad that I have ever witnessed in my lifetime. The following year will be wild and intense. I’m not quite sure how everything will play out in the marketplace, but I do know that our old friend “volatility” will return at some point.
In local news, the cost of gasoline continued a slow burn trend higher. Gasoline retail prices will continue to move in a very narrow range, but possibly higher in the coming week or so. I do not see gasoline retail prices jumping above $3.50/gal unless prices start to move in the crude oil market. Diesel prices continue to fall as our Chicago market seems to be longer on diesel inventory than expected. And just like gasoline, I expect to see diesel retail prices stay below $3.50/gal for the coming week or so.
Propane spot prices unexpectedly fell some more over the past weeks, but out months continue to stay higher. Our summer fill prices dropped a bit but nothing drastic enough to cause FOMO for those who purchased earlier. Our contract prices for next year are out and I highly recommend everyone to contract because the value of propane price percentage compared to crude oil price is extremely attractive. The best strategy is to top your tank off by the end of August, and then contract for your remaining winter gallons.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford