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World War III?

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Good afternoon!

Well, it has been a week. Crude oil prices relaxed a bit during the week, but clawed back and will be holding around last week’s high. The geopolitical risk for crude oil prices has not been this intense since Russia invaded Ukraine. Israel and Hamas were close to reaching a deal on a ceasefire, but the deal was called off. Intelligence reports from Israel claimed that all remaining hostages that Hamas are holding are dead. Therefore, there is no leverage to negotiate. Israel still plans on invading Rafah. But then in a surprise attack that was not discussed with allies, Israel bombed and destroyed the Iranian embassy in Syria killing at least eight Iranians. The news sent shockwaves across the world. Iran announced full retaliation for the attack. An Iranian response seems to be imminent. Israel told Iran that if any drones or other artillery from within the borders of Iran hit Israel, Israel will interpret the attack as an act of war. Israel said they will then retaliate with strikes into Iran directly. The situation between Israel and Hamas is escalating and spreading quickly into new territories. The world is starting to worry that a much larger conflict could breakout and pull more countries into war. Oh, and I haven’t even touched on Ukraine! This week was brutal between Ukraine and Russia. Ukraine struck another Russian oil refinery. Ukraine has officially damaged 15 of 30 Russian oil refineries. Ukraine has vowed to attack as much oil infrastructure as possible. However, Russia responded by destroying Ukraine’s largest power plant outside Kiev. Therefore, the more Ukraine bombs the Russian oil network, the more Russia will take out power in Ukraine. The war is really dragging and not looking good for either side at the moment. If the attacks of this week continue, both countries’ energy sector will be demolished. The energy losses are bad for the entire world. Also, in a surprise and not well covered interview, Secretary of State Blinken announced that the plan is to officially bring Ukraine into NATO. A timeline was not given, but Blinken reiterated that eventually Ukraine will be a part of NATO. Under Article 5 of the NATO treaty, an attack on any member of NATO is an attack on all members of NATO. Therefore, if Ukraine is a member of NATO and is bombed by Russia, the potential for a large-scale war is on the table. And depending on the conditions in the Middle East with Israel and Iran, as well as Chinese/US tensions, a potential for World War III is on the table. Finally, on the supply/demand projections for crude oil, OPEC+ is still calling for continued supply deficits in the market going into year-end. Many other countries and banks alike are making the same call due to healthy economies and steady demand for oil. Also, if Russia truly continues to lose the ability to export, crude oil deficits in the marketplace become all the more probable. Supplies in the US continue to see-saw back and forth, but the US still has upside capability to harvest more crude oil. Our exports of crude and refined products continue to flow at record levels. Therefore, if a hurricane takes out any of our exporting capabilities, there would be a shock to the world supply causing prices to move higher. And, just this week, Biden cancelled all future federal land leases on the oil reserves in Alaska. Alaska has always been our “ace in the hole” play for oil. Taking the largest deposit of oil off the table only flames support for crude oil deficits in the marketplace over the coming years. In addition, inflation data came in hot showing a strong March and healthy American economy. Although a stronger dollar usually lowers the price of crude oil, the stock market is taking a hit because FED rate cuts will probably be pushed out. Since crude oil world supply is looking to be in deficit this year, traders are pouring money into commodities to try and make up for stock market loses. As I have been writing for a while, I believe crude oil prices are well supported and have plenty of room to run higher.

In local news, Chicago spot markets traded in a very narrow range. Supplies in Chicago and the Group are very healthy. Therefore, large spikes in crude oil prices will probably not adversely affect refined fuel prices in the spot markets. Prices at the pump will probably move higher, but not at the percentage rate compared to crude oil price.

Propane price also continues to trade in a narrow range but is starting to find some support. Inventories last week reported a draw. During this time of year, national inventories should be starting to build. As record production and exportation continue to be strong, propane inventories continue to run lower than the five-year average. If crude prices take off, propane prices might end up following and taking away any advantage of cheaper summer fills. For now, I am still seeing next season’s heating contract pricing to be around the same price as this past heating season. Therefore, propane is continuing to display great value in price when compared to other energy commodities.

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

Best regards,

Jon Crawford

Up, Up, And Away!

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Good morning!

Happy Friday! I took last week off due to Spring Break. Unfortunately, the crude oil market is finding lots of support to continue the run higher in price. The war in Gaza escalated this week as Israel not only targeted the Iranian Embassy in Syria, but also mistakenly killed aid workers in Gaza. The geopolitical risks for higher crude prices kicked into full gear as expected. The US economy continues to run hot and calls on the FED cuts are all over the map. There is no consistency on if/when FED cuts will take place. The US crude oil inventories increased this week. However, gasoline and diesel inventories dropped. The report was interpreted as bullish. However, most of the refined products are being exported. The US economy seems to be healthy, but there are headwinds as cash/credit tighten with the consumer. If consumer spending starts to drop going into the summer, we could see a pull-back in crude prices. To add additional fuel to the bull-fire, OPEC+ met online and decided to keep cuts in place. Algeria and Iraq continue to pump over quota, and Venezuelan crude will find a home potentially in China. Russia’s exports have fallen, but the drop is temporary. Saudi Arabia announced this week that they are unable to meet their 2030 vision goals at the current rate of investment and crude oil sales. Although Saudi Arabia wants WTI crude oil to be closer to $100/barrel, the possibility of the Saudi’s increasing production moves onto the table if competition continues to take market share. I continue to sit back and watch everything play out. We are approaching a very intense presidential election in the US. If WTI oil continues to climb and hit $100/barrel, voters will be inclined to take out the “pain at the pump” on a sitting President. In my opinion, Biden will do everything in his power to try and lower oil prices going into November.

In local news, diesel prices have moved much higher with the increase in crude prices. Gasoline prices have remained fairly flat. The Chicago market seems to be sending a message that they are over-supplied with gasoline. We are starting to approach hurricane season and NOAA is calling for an intense and jam-packed storm season. The potential for “mini-blowouts” in basis pricing is on the table this summer and early fall.

Propane prices have moved higher in tandem with crude oil prices. However, propane cost has not moved higher at the same percentage to crude oil price movement. Summer fill season is right around the corner, and as customers finish up their contract pricing from the current season, they are pleased to hear the current retail price of propane is lower. Next year’s contracts will probably be coming out in May sometime, so more to come. Oh, and this current winter is now running at 12% warmer than last year, breaking the record for the warmest winter EVER!

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

Best regards,

Jon Crawford

Taking A Breather?

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Good afternoon!

I am writing my update early since tomorrow is Good Friday and most oil traders take the day off. Crude oil prices continued to rise at the beginning of the week. Ukraine continued to bomb Russian oil refineries forcing Russia to cut production. Iraq and UAE had troubles making production quotas in February. The EIA reported another draw in crude oil supplies in America. China’s economic data started to show signs of life. And the CERAWeek conference in Houston discussed how crude oil demand will continue to increase over the coming years. In addition, if AI truly takes off across the globe, our world energy usage could increase anywhere from 25-50% globally! The numbers are absolutely bananas! The harvesting of crude oil and natural gas will have to increase in order to supply enough energy. We just do not have enough alternative energy sources, nor can we build alternatives fast enough. However, after WTI prices hit the highest price again in many months, a short pause landed towards the end of the week. The FED decided to hold rates. The EU is holding rates. The strength of the dollar remains high. The strength of the US Dollar puts strong downward pressure on crude oil prices. In addition, the potential economic collapse in the commercial real estate market is starting to take shape. As previously discussed, the majority of all commercial real estate loans are held by small to midsize banks. Commercial property values have fallen as much as 50%+ over the last year or so. The use of Commercial Mortgage-Backed Securities (CMBS’s) has rocketed over the past years and now loans are coming due. Basically, what happened in the great housing collapse of 2008 is starting to happen in commercial real estate. The potential for a major collapse is producing economic headwinds in America. There is also some light starting to shine through for a possible ceasefire in Gaza. Many groups and representatives are talking. Hopefully there could be a deal in the place over the coming week or so. At the end of the week, the crude rally finally paused and took a breather. WTI Crude price relaxed a bit but is still remaining above $80/barrel. There is a potential for WTI price to fall back below $80/barrel, but I am still bullish on crude oil prices in the near term based on market fundamentals and geopolitical issues. There is still the possibility of a contagion sell-off in Q3 through Q4 of this year. For now, sit back and kick your feet up for a bit. It’s nice to catch your breath every now and then. 🙂

In local news, the Chicago spot market finally started to sell-off basis differentials and move closer inline with Group prices. Therefore, I believe we might have peaked on refined prices in our Chicago spot market. We could start to see retail pump prices come down next week if the crude breather continues.

Propane prices held fairly firm this week. Propane price mostly followed crude. However, we are building national inventories a bit earlier than normal, so the potential for prices to fall later in the year could take shape. Basically, prices could slowly rise all summer and into the fall. Then if there is weak corn drying demand and a warm start to the following winter, prices could sell off. We had this happen the year prior. During the 2022-2023 season, the highest price for propane ended up being in the summer! I believe it’s still to early to hedge your bets with propane. Let’s first try and get through this warmest winter on record, and then see where we sit when the dust settles at the end of April.

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

Best regards,

Jon Crawford

Bulls Continue To Feast

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Greetings!

Well, another week went by and the bulls continued to fill their bellies. The war in Ukraine escalated this week. Ukraine bombed three Russian oil refinery/production facilities. The attacks took out possibly 200k bbd of crude oil production. Even though other oil producing countries can quickly make up the difference, the calls went radio silent and the countries decided to the let the bulls continue their run. The war in Gaza seems to have no end in sight. Ceasefire talks failed to materialize again this week. However, the US engaged Iran with talks discussing deescalating the Houthi attacks in the Red Sea. The talks were the first between the US and Iran in over ten years. Iran agreed that deescalating the Houthi attacks are in both parties’ interest. However, many in the world community do not believe that Iran will do anything. In fact, now Iran knows that the US is struggling to contain the Houthi attacks. Some reports now say that attacks might increase due to the talks. China and Japan seem to have found some bottom support in their stock markets. Outside money seemed to slowly trickle back in. Inflation data in the US continued to show a hot economy and supported pushing out rate cuts. And then in a surprise press release, the IEA changed their call to world oil crude supplies falling into deficit this year. Since the beginning of 2023, the IEA called for oil supplies to be in surplus all of 2024. The news this week continued to support higher crude oil prices for the near-term. But the horizon is starting to look a bit hazy. Jamie Dimon from JP Morgan/Chase raised his call of the US falling into recession by mid 2025 to 50%. Many oil traders liquidated long oil positions starting in Q4 of 2024 and beyond. The stronger dollar is probably keeping a lid on WTI price from flying to $90/barrel. But I do think that $80/barrel WTI crude oil will remain for the coming months. The upcoming summer demand and inflationary data through Q3 of 2024 will tell us more. For now, keep your seat belt on and hold tight. Many traders are calling for $100+/barrel oil, but I think that’s a trap based on the very long positions in crude. Patience wins the race and as I have been saying since the end of 2023, 2024 will be a cost-average year with maybe only locking up 25% of one’s petroleum needs.

In local news, the Chicago spot market is not in great shape. The higher spot prices in the Chicago market are looking to hang around for some time. Bp Whiting is still not pumping at full speed. Mobil refinery had a flaring event that shuttered some production. Citgo refinery had an oil leak reported. And then three other refineries announced upcoming maintenance in Q2 of 2024. Therefore, the Chicago refinery market is feeling some short-term pain. I expect Chicago spot economics to run a bit higher compared to our neighbors in the Group for the next few months. Hopefully by summer, Chicago production will be in full-swing and spot prices will drop lower than the Group. In the meantime, I expect to see retail prices of gasoline and diesel to be very choppy. The Chicago spot market trade will be very volatile and the prices at the pump will reflect accordingly.

Propane cost continues to trade at a decent “percentage to crude cost”. However, in my opinion, the devil is in the details. If crude prices stay high, propane cost will trade very flat. And if crude prices drop, the production of propane will also drop. However, the drop in price/production might not cause the price to run much higher because there is so much room for the “percentage to crude cost” to move higher. If crude prices fall and propane prices stay flat, many retailers will pile into future purchases which suppliers want. I think suppliers could use the “percentage to crude cost” to coax retailers to the buyer’s table. Propane inventories also started to build this past week. Usually propane inventories don’t experience an inventory build until April at the earliest. Although national propane inventories are at lower end of the five year average, I could see propane inventories building quickly this summer. In addition, the farm season is not looking good so far which means a potential weak crop drying demand in the fall. I’m still sticking with the possibility for some lower summer-fill prices on propane and next year’s propane heating contract prices to be very similar to this year’s prices.

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

Best regards,

Jon Crawford

A Big Yawn

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Good morning!

Happy Friday! The news cycle this week continued with much of the same old same old as last week: Houthis continuing their threats in the Red Sea, the war in Ukraine slowly grinding in the favor of Russia, the FED sending mixed messages on rate cuts, China’s economic data still being poor, the IEA saying oil demand will decrease, OPEC+ saying oil demand will increase, and a “devil in the details” EIA report. The news of the week continued to support WTI crude oil prices, even though in my opinion, the news was bearish. Again, the market continues to act irrationally. The EIA report announced a smaller than expected build in crude oil inventories. However, there was an outage on the Keystone Pipeline that supplies Conway with storage barrels. Therefore, the smaller build in inventory was due to restricted crude oil shipments flowing into storage. And FED Chairman Powell reported on Wednesday that rate cuts are almost ready to go. But today the jobs report was red-hot showing that the economy is still going strong. So within two days, Powell’s speech was basically pointless. The economic data is still showing inflation stronger for longer. All the news this week continued to keep WTI prices in a narrow trade range between $78/barrel and $80/barrel. For now, the bulls seem to be holding on to anything that will keep prices high. I still see rate cuts coming later this year, but maybe only one to three total cuts. I also tend to put my money on history. History shows that crude oil prices usually drop going into a Presidential election. Again, I believe patience will win this year and opportunities for buying crude oil at lower prices will come to fruition at various times throughout the remaining year.

In local news, the supply of gasoline in the Chicago spot market seems to have finally balanced out. The cost of gasoline dropped in our market since last week. Therefore, I do expect to see gasoline retail prices drop. Diesel prices in the Chicago spot market continue to be stubborn and remain higher compared to our neighbors in the Group spot market. Diesel cost on the CME followed NYMEX crude oil prices in tandem. Therefore, since diesel cost increased a bit in our local spot market, I do not expect to see diesel retail prices drop in the first part of next week.

Propane prices traded in a very narrow range again this week. Even though warm weather is demolishing heating demand, exportation of propane remains at record levels. Our national inventories are now officially below the 5-year average, even though we are possibly experiencing the warmest winter on record. But the out months on propane futures are firming up due to the possibility of supplies being short if there is a colder winter in the future. Many companies are starting to place long bets on propane futures over the next two to four years. I still believe we will have some better retail prices on propane for the summer. But I could see next year’s contract pricing being almost the same price as this year.

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

Best regards,

Jon Crawford

Contradictions Racing To The Finish Line

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Good morning!

Happy Friday! The news cycle this week was filled with contradicting predictions on future price of crude oil. Crude prices are going to close today with back-to-back weeks of gains. I am baffled by the increased price this week based on the data. But once again, markets are irrational. China released data to start the week that was absolutely terrible. The real estate crisis in China has spread to all aspects of the economy. Xi Jinping announced again that The People’s Bank of China will be injecting cash into the system to hold off a continued massive sell-off in their stock market. In addition, Chinese GDP contracted and predictions for crude oil consumption were cut in half for the coming years. The news out of China was completely bearish. But the bulls won the day due to the announcement of a potential ceasefire in Israel/Gaza. Usually, such an announcement of potential peace in a conflict would make crude prices drop, as geopolitical tensions would start to dissipate. But crude oil prices popped due to markets believing that if the war ends, demand will start to pick up all over the Middle East. The bet is very risky and not supported by history, so I was very confused by the market reaction. The FED announced the adjusted CORE inflation number for January. The rate was 2.8% which is above the FED’s target rate. And CPI in January increased to 3.8%, which is the largest month-over-month increase in almost a year! The announcements from FED governors supported delaying rate cuts until at least the second half of the year. Therewfore, based on the aforementioned FED data, the dollar will stay stronger for longer. A strong dollar puts downward pressure on crude prices due to crude oil being traded in dollars on the world market. But again, crude prices popped on the news because the inflation numbers “were in-line with expectations.” Wow! Markets predicted higher inflation and a kicking of rate cuts down the road which truly makes crude oil cheaper. But because their predictions were confirmed by the data released, the market celebrated and raised crude oil prices! Once again, markets can be irrational. In world news, the International Energy Conference was held in London and the big talk was that US fracking production would peak and decrease causing market tightness. In addition, most believe that the world is not investing enough in crude oil future harvesting to meet the world demand. The conference continued to fan the flames of a crude oil rally, even though demand in China is falling and the potential for demand to drop around the globe is possible over the coming years due to economic pressures. The conference continued to contradict itself all week. OPEC+ is leaving millions of barrels of production on the sidelines. Russia and others are making changes to ensure that all petroleum products get into the marketplace. And OPEC predicts crude oil market demand will contract in the coming year-over-year even though OPEC is keeping cuts on the table. Therefore, all the talk at the conference was contradictory but the bulls latched on to every word that supported higher oil prices. And for the cherry on top, Iran announced that they will be ending their program of enriching uranium for nuclear weapons. The announcement was a huge surprise and de-escalation of potential future conflict in the Middle East. Even though Iran has enough enriched uranium to build some nuclear weapons, the announcement to cease further production is a big deal. But even that news did not cause crude oil prices to drop! To be fair, there was some bullish news reported this week. In America, traditional diesel supplies are continuing to run at lower inventory levels as more renewable and biodiesel enter the marketplace. Basically we are at a point in time where “green energy” diesel is making up the gap in production of traditional diesel. So why is the news bullish? Well, the majority of biodiesel comes from soy. And a lot of diesel is needed to plant and harvest soy. Then there is the energy cost of making the biodiesel. Therefore, we are increasing the use of diesel and driving up the price of soy oil on the open world market. With higher soy oil prices worldwide, many poor countries are forced to buy palm oil which produces the most amount of pollution compared to any other oil. So our EPA rules for cleaner diesel are actually increasing the use of traditional diesel and driving up pollution releases in poor countries. The news caused crude oil prices to pop due to a potential increase in diesel demand that is currently not being supported at current production levels. And then the geopolitical issues of the week were very bullish and supported higher crude oil prices. Russia continued to make advances in Ukraine. Ukraine is struggling to hold. Putin gave his yearly address and stated that he will not take his foot off the gas. And if NATO troops show up in Ukraine, Russia will be forced to reestablish their nuclear missile program. The speech sent jitters through the market because France has floated the idea of sending troops to Ukraine. If any NATO countries send troops into Ukraine, the escalation in the war would go through the roof. And at the end of the week, the potential for a peace deal in Gaza was halted when a humanitarian food supply convoy was attacked. Oh, and another fun fact; during the past two years of being distracted with the war in Ukraine, North Korea now has nuclear weapons that are capable of striking the US. And North Korea said they would be happy to sell their nuclear weapons to Russia. So at the end of the day, even though the bullish news of the week was extremely contradictory, the bullish geopolitical risks are winning the race to the finish line. Personally, I believe WTI crude oil prices are a little over-bought. But any correction downward on WTI crude oil has major support at $70/barrel.

In local news, the Bp Whiting refinery is back to full production and starting to back-fill their supply deficits. Right now they are working on resupplying all their branded fuels, and then they will work on unbranded fuels. The news caused national crack spreads to drop and prices of gasoline and diesel in the CME spot market to drop. However, at the end of February, the future March contract expired and the April contract started trading. In April, gasoline is required by the EPA to meet a summer vapor pressure spec of 13.5 PSI. Therefore, although crack spreads were dropping, gasoline prices went up due to refineries having to start production of summer gasoline that costs more to manufacture compared to winter gasoline. Unfortunately, I do not see retail prices for gasoline or diesel dropping much at the pump.

Propane spot prices fell a bit this week due to extremely warm weather. However, the out-months on propane have firmed up and found support. The support is coming from high levels of national exportation and the belief that crude oil prices will remain higher for longer. Although we might see some cheaper summer fills, the long outlook on propane shows higher prices. But I don’t expect those prices to jump over $2.00/gallon at retail. So overall, very affordable propane prices remain on the horizon for the coming years.

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

Best regards,

Jon Crawford

Not Much Out There This Week

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Good morning!

Happy Friday! The news cycle was fairly slow and uneventful this week regarding crude oil. Crude oil prices traded in a very narrow range all week. Most of the issues discussed were geopolitical instead of supply/demand. Ukraine suffered a setback this week with the loss of Avdiivka. The Western Nations and the UN are struggling to come up with a plan for continued Ukrainian funding. Russia, in addition to the victory this week, announced that they were considering putting a nuclear weapon in space to take out other countries’ satellites. The US and many other countries vehemently oppose any such action from Russia. Also, Alexei Navalny died in a Russian prison this week, along with another Russian war defector. The incident forced the United States to place further sanctions on Russia. In the MIddle East, not much has changed. Israel refuses to negotiate a peace deal that does not include releasing all Israeli hostages. The US, Egypt, and others have desperately been trying to force Israel to the table. The US blocked a ceasefire resolution in the UN this week because there was no provision forcing the full release of Israeli hostages, and the deal also included the release of Iranian backed prisoners. Israel continued to beat the drums that they will invade on March 10th. About 1.5M refugees will need to evacuate Gaza within about two weeks to avoid any potential conflict with the Israeli invasion. Hopefully a peace deal can be struck. There has been little progress between the US and the Houthis conflict in Yemen. Another ship was taken over by rebels this week. Although shipments through the corridor caused crude oil supply disruptions, those ships are now reaching Europe from around the Horn of Africa are easing some of the supply constraints. China also announced stop-gaps to control their collapsing stock market and real estate disaster. For now, the government programs seem to have maybe placed a floor under the crisis, but there is a long way to go before China is back to business as usual. The EIA reported another build in crude oil inventories, but draws on refined products. Due to some deep freezes in the south, a lot of crude harvesting was shut down. Most oil rigs are back online so we expect oil supply to be back at record levels soon. Exports remain very strong, especially with the shipping distance issue with the Red Sea in the Middle East. In addition, the FED speakers this week announced that a rate cut by June might still be too soon. Home Depot reported their 5th straight quarter decline in revenue. However, inflation is remaining a bit high. So possibly, the economy is showing signs of slowing, but the FED is adamant that they will not take the foot off the gas until inflation is tamed and steady. So overall, the push-and-pull of all the aforementioned issues placed equally downward and upward pressure on crude oil prices making the trade very narrow this past week. We will see what happens over the weekend and into next week as to how some of the current geopolitical issues start to play out.

In local news, the Bp Whiting refinery seems to be back to full operation next week. The announcement relieved a ton of supply pressure in the Midwest. Spot basis in the CME dropped back to normal levels offering some relief in prices. Therefore, we should start to see some retail prices at the pump go down a little. The worst of the supply issues seem to be behind us.

Propane prices rocketed higher to start the week and then fell a bit to end the week. The tug-of-war with propane is based on high crude prices high, low demand in the US, but record exports. Due to record exports, national propane inventories are now at/below the 5 year average even with record low demand in the US. Whereas back in November, propane inventories were above the 10 year average! Exports are going to be very high for the remainder of the year. So for right now, it’s hard to tell where propane prices will head this summer.

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

Best regards,

Jon Crawford

US Oil Cartel?

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Good morning!

Happy Friday! This week was dominated by news of escalating situations in the Middle East and Ukraine. Israel rejected all options for a ceasefire in Gaza and decided to invade Rafah. Rafah is home to millions of displaced Palestinians. Israel told all Palestinians at the start of the war to evacuate to Rafah when the war began. Now Israel is giving a limited time for the Palestinians in Rafah to evacuate before Israel invades the entire Gaza strip. The US denounced Israel’s plans.  However, the US is continuing to supply Israel with weapons. Netanyahu is not communicating at all with Biden. The lack of communication is causing much anger and frustration inside the Biden administration. There could be a call to stop sending Israel weapons before the invasion of Rafah. Stopping the sale of weapons to Israel would be the first instance where the US denies military support to Israel. Egypt has built an 8 square mile concrete containment wall to hold Palestinians if they should flood the Egyptian border. The increased tensions have pushed Iran to increase their weapons exports to all their proxies fighting on their behalf in the Middle East. There has been no progress with the Houthi situation in Yemen, and in Lebanon, reports are coming in that chemical weapons might have been used by Lebanon against Hezbollah. The inquiry is looking into the truth of the claim, as well as if the weapons came from the US. In Ukraine, Russia launched a supersonic missile that breaks through all lines of defense. The US did not believe that Russia had such capabilities. Therefore, the threat of increased powerful strikes on Ukraine are increasing. In addition, Russia is now hiring Cubans to fight in Ukraine and Russia is exploring placing missiles in space to attack adversaries’ satellites. In crude oil economics news, the IEA is calling for a balanced year in the crude oil market for the remainder of the year. Although supplies have been ample, the amount of increased crude oil demand around the world was cut in half due to the collapsing economy in China and a potential for US recession.  OPEC+ responded saying that demand around the globe will increase beyond production and crude oil supplies will go into deficit. Even though Iraq and Kazakhstan have continued to produce crude oil beyond quotas, Saudi Arabia believes that the robust world demand will dominate supply production. JP Morgan/Chase echoed Saudis’ response and also believes that tensions in the Middle East will escate causing further crude oil supply disruption. In a surprise move this week, oil producing companies in the US all reported that they will cut production to try and boost price and return money to shareholders. The announcements seemed to be very calculated in tandem raising eyebrows that US oil companies are working together to prop up oil prices. The news came on the heels of massive builds in US crude oil inventories reported by the EIA this week. The announcements seemed to try and pour cold water on the bears in the crude market and keep WTI crude oil prices stable. The markets took the news as bullish, but as I like to say, the devil is in the details. Even though all major oil companies in the Permian basin said that they would cut production, the largest companies still only make up just a bit over 50% of all the oil produced in the Permian basin. Therefore, wildcatters are still strong in the Permian Basin. And as long as there is an appetite for crude oil on the open world market, those companies will pump and sell. Taking a 20k foot view, I still believe that WTI is going to trade in the $70-80/barrel price based on economics. Black Swan events to the down or upside will depend on the the situation in the Middle East and Russia, as well as potential economic recession in China and the US. In addition to all the crude oil supply news, the Fed data released this week showed that inflation for December went up, and the initial inflationary reports for January showed an increase in inflation as well.  But even the possibility of a stronger dollar for longer didn’t move crude oil prices lower as is the norm when such events take place.  For now, I see stability in the market so it’s wait and see what will happen next.

In the local markets, Chicago basis finally balanced versus the Group.  The supply shock from the Whiting refinery shutdown seems to be contained. Prices of gasoline and diesel have peaked, so therefore there should be no more upside movement on prices of gasoline and diesel at the pump.

Propane prices followed crude oil prices higher and even climbed higher on days that crude oil prices dropped. Exports of propane continue to be greater than expected and national inventories are falling below the 10 year average. March looks to be colder than normal. Propane prices are well supported in the present moment. If crude oil prices stay high, and propane inventores finish the season closer to the five year average, we might not experience very low summer fill prices. Time will tell and a lot of potential change in propane price is in the hands of mother nature.

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

Best regards,

Jon Crawford

Bulls Gained Momentum, But Is The Rally For Real?

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Happy Friday!

This week crude oil news cycle was not as spicy as last week. 🙂 Crude oil prices started the week moving lower and continued through Wednesday. China’s stock market rout continued this week and consumer prices dropped again for the 16th straight month. The news pushed the bears along believing that Chinese crude oil demand will decrease this year. Then on Tuesday and Wednesday a few popular FED governors spoke and threw cold water on March rate cuts occuring, and also reported possibly only two to three rate cuts for the entire year. As usual, when the dollar stays strong, crude oil prices start to drop because crude oil is traded in dollars. In addition, on Wednesday, crude oil inventories in the US increased during the week prior, even though production and exports remained at record highs. The increase in stockpile coupled with the FED’s cold water on March cuts, pushed crude prices even lower. Then at the end of day Wednesday crude oil prices started to recover as the US reported killing the Iraq militant who planned the attack on the US base in Syria. As crude oil prices started to rally, the top general in Ukraine spoke out against continuing the war with Russia. Ukraine is reporting heavy loses of ammunition and the US has been unable to pass additional funding for Ukraine. Then in after hours trading, Hamas offered a ceasefire deal to Israel. Crude oil futures flattened out on a possible peace deal in the Middle East. However, we woke up on Thursday to Israel rejecting the peace deal, and Zelensky firing his top general. The news pushed WTI crude oil price past $75/barrel for the first time in a few weeks.  In two weeks, OPEC+ is having their meeting. Right now Iraq and UAE are both pumping 100k bbd of crude oil over their quotas. The meeting will all hang on Saudi Arabia’s decision. The market is pricing in that Saudi Arabia will continue their status quo. However, if Saudi Arabia decides to increase production, crude oil prices will probably collapse.  But a world-wide market share competition did not go well for Saudi Arabia last time, so I’m placing my chips on the bet that Saudi Arabia stays the course.  The week ended with the US government reporting an adjusted increase to CORE inflating in November and confirmed December’s inflation number.  The release gave further support for the FED to keep rates higher for longer.  Therefore, higher rates support crude oil prices.  Crude oil prices finished higher this week for the first time in a few weeks.  In addition, WTI crude oil price finished above the psychological support price of $75/barrel.

In local news, gasoline and diesel spot prices continue to run at much higher prices due to the BP Whiting refinery being down. From the rumblings on the ground, the refinery could take 2-4 weeks to be fully operational again. So until the refinery is fully operational and delivering refined products into the market, be prepared to pay higher prices for both gasoline and diesel at the pump. Once the refinery is good to go for a bit, our local market should hopefully drop in price and offer some relief.

Propane prices have followed crude oil prices higher this week. Even though January was officially the warmest January on record, propane exports are at record highs. Our national inventories are now at the 10 year average with the warmest winter on record. Remember, we started the heating season with the top-10 ever highest volume of propane inventory in US history! So for propane inventories falling to 10-year averages even though we are experiencing a possible warmest winter on record, the appetite for propane exports is not slowing down. I expect propane to trade in tandem with crude for the coming months. I also am not seeing where retail prices will drop below $1/gallon this summer. Summer fills could possibly even be higher than today’s price if crude oil prices remain high throughout summer and exports limit the amount of propane inventory building needed for next winter. So far now, it’s a wait and see.

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

Best regards,

Jon Crawford

Ships Passing In The Foggy Night

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Good morning!

Happy Friday! The crude oil trade this week was very foggy with bears and bulls passing each other multiple times in the night. There were no major collisions, but the ships are moving closer together. First up was the foggy reports on China’s economic activity. Evergrande, the largest Chinese Commercial Real Estate Group, was forced to liquidate due to a court ruling in Hong Kong. The ruling sent waves through the world markets as many investors were from countries outside of China. China responded by injecting more cash into their economy and lowering interest rates. The news was a pile on to the fears that China’s economy is slowing and therefore will decrease their crude oil consumption. All of the activity in China weighed on crude oil markets and prices began to fall. Secondly, the US announced that they have a plan to retaliate against Iran for their drone strike that killed three American soldiers over the weekend. Iran pleaded with the US that diplomacy would be a better option. The US denounced the possibility of having any discussion and instead heavily struck the Houthis in Yemen. The retaliatory strikes form the US against Iran did not happen this week, but time will tell. The news gave support to higher crude oil prices due the potential fog of further war in the Middle East. Thirdly, on Wednesday the US EIA reported a build in crude oil inventories. Industry experts were expecting a decline in inventories due to the Red Sea disruption. Europe began placing more orders for crude oil from the US and Brazil due to the freight arbitrage between Middle Eastern countries having to sail around the horn of Africa instead of going directly through the Red Sea corridor. Fourthly, the Fed spoke and said that interest rate cuts are on the table, but a rate cut in March was probably not going to happen. The news caused fog to spread throughout the markets. Traders continued to price in the rate cut for March causing crude oil prices to fall due to the potential of a weaker dollar. Even though all the news on Wednesday wasd bullish, the bear traders pushed their ships straight ahead and passed the ship of the bulls in the night. Fifthly, on Thursday Canada announced approval of an east to west coast crude oil pipeline that will give Canada access to exportation of their 4.1M barrel/day crude production into the world market. As of today, 100% of Canadian crude goes to the US. The US has all the leverage for negotiating prices with Canada because Canada has nowhere else to go with their crude. In the past ten years, I’ve pushed and lobbied that the US should have found a way to run the Canadian crude through a US pipeline to the Gulf Coast. Now I know the Keystone pipeline was very controversial and not needed for US energy security. However, the US would have been able to control Canadian exports, which in turn would have given the US leverage to negotiate crude purchases from Canada. Instead, the US gambled that Canada would never be able to pass legislation allowing a crude oil pipeline to be built throughout the country to the west coast. Well, Canada was able to accomplish the impossible. With Canada having access to the open crude oil market, the East of Rockies refiners in the US will now be forced to find new crude imports from other countries. Or US refiners will be more dependent on local crude oil producers. Regardless, the actions from Canada this week could bring downward pressure on world crude oil prices because Canada can cut direct deals with Japan, Singapore, and China. However, even though crude oil prices could experience downward pressure, the US crack spreads on crude East of Rockies will increase dramatically causing the price of gasoline and diesel to increase. Sixly, the newswires announced that a potential long-term ceasefire is on the table in Gaza. The news caused a sell-off in crude prices due to the potential of turning down the temperature in the Middle East and avoiding an escalation of conflict in the region. Seventhly, Saudi Arabia reported a downturn in their economy due to revenue losses from lower crude oil exports. Therefore, a potential for Saudi Arabia to possibly increase production or offer discounts on crude oil prices to increase revenues is on the table for the first time in years. And lastly, today the government released jobs data which new jobs added as well as the unemployment rate. Job hirings increased at a greater pace than expected, even though firings increased. And in addition, surprisingly the unemployment rate dropped. The traders aboard the bears’ ship passed the bull’s ship again and WTI crude prices collapsed this morning. The drop has spooked a lot of traders to change position on a March FED rate cut. Therefore, if rates stay higher for longer, crude oil prices should continue to experience downward pressure from a stronger dollar. In conclusion, a LOT of data was released this week. Crude oil prices will report a loss for the week. Even though the data is extremely foggy, the trader’s on the bears’ ship passed by the bulls without any accident. A potential for crude oil prices to drop below $70/barrel is back on the table.

In local news, Chicago spot market prices skyrocketed yesterday due to Bp’s Whiting refinery going offline. The Whiting refinery is the largest refinery East of the Rockies refining about 500k barrels of crude oil per day. Bp is not releasing much information other than a possible power outage. The bad news, is that refineries can take anywhere from 5-14 days to regain full production. Therefore, I expect to see retail prices at the pump for both gasoline and diesel increase in the coming weeks. However, the increase in price could be short lived.

Propane prices increased this week even though crude oil prices dropped. On Wednesday, the EIA reported a second straight week of massive drawdowns in national propane inventories. The drawdown comes on the back of cold weather and massive exports. EVen though temperatures are looking to be warm in the coming weeks, I do not see propane prices dropping considerably. The appetite from Europe for propane exports is extremely robust due to the Red Sea conflict and the inability to purchase cheaper propane from Saudi Arabia. Even though the weather looks to be warmer, I always like to remind our customers to keep their driveways clean and have a clear path to their propane tank in order to ensure a safe and efficient delivery.

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

Best regards,

Jon Crawford