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The Return of The Battle for Market Share?

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Good morning,

Happy Friday! This week’s news cycle rattled the oil markets, causing a selloff that pushed WTI crude oil prices back below $70 per barrel, with prices expected to close the week at a loss. Several factors contributed to the downward pressure on prices. Firstly, Chinese demand remains weak, and despite China announcing a series of economic stimulus plans to reinvigorate its economy, global markets, including commodities, remained skeptical. Many traders believe these measures are insufficient and too late to make a significant impact.

Additionally, Libya announced an agreement between the government and militant groups to restore 700,000 barrels per day of crude oil production, adding further bearish pressure to the market. The biggest surprise, however, came from Saudi Arabia, which announced that it would abandon its push to drive crude oil prices to $100 per barrel. Instead, Saudi Arabia plans to increase production in December to compete for market share. This announcement triggered a sharp decline in crude oil prices. Historically, Saudi Arabia’s strategy of increasing production to gain market share has led to significant price drops—by as much as 25% in the past. However, the kingdom did not provide any new price target, leaving the market uncertain about future pricing dynamics.

Despite these developments, I believe that crude oil prices will stabilize above $70 per barrel going into next year. Other OPEC+ members and even U.S. producers are unlikely to allow prices to collapse. In my view, $70 per barrel represents a sustainable operational price. I also anticipate that Chinese demand will recover next year, with global demand remaining steady. While the threat of oversupply persists, I believe the market has already priced this in, which means crude oil is currently oversold.

On the geopolitical front, several major events could trigger a sudden price spike. Ukraine may launch deeper attacks into Russian territory, Israel is preparing for an offensive against Hezbollah in Lebanon—the first since 2006—and China recently tested an intercontinental missile near Japan. If any of these situations escalate, the potential for a sharp increase in crude oil prices remains high.

In local markets, the Chicago spot market continues to face significant product shortages, as does the Group market. As a result, spot prices have surged compared to the Nymex benchmark. Both gasoline and diesel are trading at a premium due to several factors: Midwest refineries are offline for maintenance, demand is increasing with the harvest season, and Hurricane Helene is putting pressure on Chicago and Group markets to ship refined products they don’t currently have to the Gulf Coast. I expect retail gasoline and diesel prices to rise at the pump, and we could see elevated prices for the next couple of months until refining capacity returns to normal.

While propane prices remain relatively soft, I believe this will be short-lived. Hurricane Helene temporarily halted both exports and production, balancing supply and demand dynamics. NGL has also announced that it will take its export terminal offline for maintenance, though this will only be a brief disruption. As demand picks up east of the Rockies, particularly with corn drying and eventually home heating, I expect propane prices to recover.

As always, if you have any questions, comments, or concerns, please don’t hesitate to give us a call. Have a great weekend!

Best regards,

Jon Crawford

Where Do We Go From Here?

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Happy Friday!

Crude oil prices are set to close the week at their highest level in weeks, with WTI now firmly above $70 per barrel. Several factors have contributed to this upward momentum, including a full 50 basis point rate cut by the Federal Reserve, a similar rate cut by the European Central Bank (ECB), and escalating conflict between Israel and Hezbollah. The Federal Reserve’s rate cut has devalued the dollar, making crude oil more expensive since it is traded in U.S. dollars. Additionally, the ECB’s rate cut has signaled that other central banks may follow suit, potentially increasing crude oil consumption across Western economies. The conflict between Israel and Hezbollah has also intensified, particularly in Lebanon, where remote explosive devices were used, further contributing to geopolitical uncertainty and supporting higher oil prices.

Despite these bullish factors, there is still bearish news on the horizon. China continues to exhibit signs of economic weakness, with demand for refined fuel products at its lowest levels in years. Additionally, China’s financial sector remains unstable. More bearish news comes from Russia, which is utilizing a shadow fleet of tankers to circumvent sanctions and continue selling crude to various countries. Although the U.S. and NATO have imposed sanctions on countries purchasing Russian crude, these have yet to be enforced in any meaningful way. As a result, Russia has maintained its crude oil sales, even supplying nations that are U.S. allies. Overall, global crude oil demand appears to be relatively flat, while ample spare capacity and the commissioning of new refineries worldwide could easily tip global petroleum supplies into surplus. Although crude oil prices are rising, the prospect of a potential supply surplus is preventing more dramatic price increases.

Locally, the cost of gasoline and diesel continues to rise alongside crude oil prices. However, the Chicago spot basis has seen a sharp increase, largely due to higher demand from the harvest season and the shutdown of multiple refineries for maintenance. As a result, we can expect retail pump prices to rise next week and remain elevated for the foreseeable future.

As for propane, fundamentals continue to show weakness. National inventories are in excellent shape, and there are currently no concerns about supply shortages. That said, prices may climb higher as demand increases, particularly as the propane-to-crude price ratio still has room to rise. If we experience a colder-than-average winter, I expect propane prices could rise sharply due to the unseasonably warm winters we’ve experienced over the past two years. For this reason, I strongly recommend topping off your propane tanks and locking in a portion of your winter supply to protect against potential price spikes during the colder months.

As always, if you have any questions, comments, or concerns, please don’t hesitate to reach out.

Thank you, and have a great weekend!

Best regards,

Jon Crawford

Almost Back To Where We Started

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Happy Friday!

WTI crude oil prices are nearing $70 per barrel once again, a key support level for various reasons. At this price, most refiners can operate profitably. Interestingly, geopolitical news has not been the primary driver pushing prices higher. Many traders believe the market was oversold. Russia continues to face challenges selling its product on the open market, and Libya has yet to return to full export capacity. Meanwhile, Hurricane Francine temporarily halted most production in the Gulf this week. Additionally, U.S. national crude inventories continued to decline despite high refinery runs and crude production levels, signaling there is still demand somewhere.

Analysts remain divided on the outlook for future demand, with institutions like the IEA, EIA, OPEC+, and various large banks frequently adjusting their projections for crude oil consumption. While China’s recession is a real concern, many believe that the country will eventually regain its economic footing, possibly as soon as next year. On the geopolitical front, tensions between Russia and Ukraine could escalate if the U.S. permits Ukraine to launch ballistic missiles into Russian territory. Russia has issued stern warnings, indicating that such an attack would be viewed as an act of aggression from NATO. The ongoing conflict in Gaza continues without a clear resolution, though it has not significantly influenced oil prices.

Locally, the Chicago market firmed up this week, signaling that the low prices of the past two weeks may be behind us as we move into October. Harvest season will likely put added pressure on refined products in our region. However, despite this anticipated increase, retail prices for both gasoline and diesel should remain relatively low compared to historical averages.

Propane prices continue to stay weak, with national inventories remaining robust. However, there is potential for a strong corn-drying season and a colder-than-expected winter. Once exports resume after the disruptions caused by Hurricane Francine, I anticipate that many countries will increase their propane imports in preparation for the winter months. As such, I highly recommend that everyone top off their propane tanks now and consider contracting some gallons for the upcoming winter season.

As always, if you have any questions, comments, or concerns, please don’t hesitate to reach out. Have a great weekend!

Best regards,

Jon Crawford

The Bears Continue to Win

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Good morning,

Happy Friday! Oil prices reached their lowest levels of the year this week, effectively erasing all gains in WTI pricing for 2024. China’s ongoing reduction in oil imports, coupled with lackluster economic data from both Europe and the U.S., has fueled concerns of a potential oil surplus. As summer demand in the U.S. fades, the possibility of an overall oil surplus is gaining traction. Both the U.S. and Canada continue to produce oil at record levels, while Libya has resumed production and started exporting once again.

Despite some bullish data, the sentiment remains overwhelmingly bearish as news of a potential crude oil surplus in Q4 of 2024 continues to dominate the market. The EIA reported a significant drawdown in U.S. crude oil inventories, and many refiners are entering maintenance in Q4, leading to reduced refining runs. However, even these bullish reports couldn’t significantly alter the market’s course. The Federal Reserve is expected to cut rates, which could make crude oil more expensive. OPEC+ made a surprise announcement that production increases may not occur until December, and Kazakhstan is experiencing production slowdowns due to technical issues and maintenance. But these bullish developments provided only brief support for prices.

Geopolitical factors are also beginning to contribute to the bearish outlook. Russian President Vladimir Putin announced his willingness to discuss peace under specific terms. If a peace deal or ceasefire is reached between Ukraine and Russia, the unrestricted flow of Russian oil could further heighten the risk of a global oil surplus. As a result, the economics of crude oil are increasingly pointing toward a bearish trend. WTI prices have fallen below $70 per barrel, and while speculative, based on current fundamentals, a drop below $60 per barrel is possible in Q4 of 2024 or Q1 of 2025.

On the local front, the Chicago spot market basis has collapsed alongside the decline in crude oil prices. Gasoline and diesel prices have fallen to their lowest levels of the year, with retail gasoline prices dipping below $3 per gallon in some local markets. Diesel prices are also approaching sub-$3.29 per gallon levels for the first time this year. While demand is decreasing as children return to school, motorists can expect to enjoy lower prices at the pump for at least the coming weeks.

Propane prices, once again, did not follow the downward trend of crude oil. As previously mentioned, the propane price percentage relative to crude oil still has room to increase before we see a significant rise in spot prices. The propane-to-crude price percentage has climbed from 34% to 44%, moving closer to historical averages. There remains some room for further percentage increases, which supports the stability of propane prices even as crude oil declines. I continue to recommend that customers contract a portion of their heating needs for the upcoming winter. The Farmer’s Almanac is forecasting a colder-than-average winter, and it’s worth noting that the past three winters have been some of the warmest on record. Topping off tanks at current prices is a prudent move.

As always, if you have any questions, comments, or concerns, please don’t hesitate to contact us. Have a great weekend!

Best regards,

Jon Crawford

Happy Labor Day Weekend!

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Happy Friday!

Markets are always a bit wonky going into a long holiday weekend. I’ll pick back up on market updates next week. I hope everyone has a safe and enjoyable Labor Day weekend!

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

Best regards,

Jon Crawford

Swinging At The Bottom

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Good morning!

Happy Friday! This past week was another eventful one in the markets. WTI crude oil experienced a significant sell-off, nearly breaching a critical support level at $70 per barrel. The primary driver continues to be global economic conditions, particularly in China. Recent data points to China’s economy losing momentum, with declines in new home prices, a slowdown in industrial output, and rising unemployment. Additionally, China’s exports of refined products and other commodities have plummeted. Meanwhile, Russia has maintained record levels of crude and refined product output, with India officially becoming Russia’s largest customer. The increased output from Russia and Iraq has added downward pressure on crude prices.

Looking ahead, OPEC+ is expected to begin unwinding its disciplined production cuts next month. If this plan proceeds, the global crude oil market could shift to a surplus, potentially triggering a “flash crash” in prices. Although the U.S. reported unexpected draws in crude oil and refined product inventories this week, the impact was offset by poor economic data and the Federal Reserve’s minutes, which suggest that rate hikes may occur in September. Additionally, the U.S. revised its job creation numbers from March, reducing them by over 800,000—a significant adjustment not seen since 2009. As summer ends and gasoline demand declines, there are concerns that overall demand for refined products may diminish. However, U.S. shale oil producers are continuing to ramp up production, raising fears of an oversupply in the domestic market.

Geopolitical tensions in Israel and Gaza took a backseat this week as discussions of a cease-fire resumed. Iran is withholding any retaliatory actions against Israel pending the outcome of these negotiations. Meanwhile, the conflict between Ukraine and Russia persists, with Ukraine advancing into the Kursk region and Russia reorganizing to target vulnerable areas in Ukraine. Despite these geopolitical risks, economic data was the dominant influence on the crude oil market this week.

We now await the Federal Reserve’s remarks at Jackson Hole regarding potential rate cuts in September, as well as the upcoming OPEC+ meeting, which will address the continuation of production cuts through the end of the year. September will be a crucial month for determining the future trajectory of crude oil prices for the remainder of 2024.

In local markets, weakening gasoline demand and the return of the Joliet refinery to full operations have led to a significant drop in gasoline prices. I expect retail gasoline prices to decrease slightly next week if current trends continue. However, diesel prices seem to have stabilized due to the onset of refinery maintenance and the approaching harvest season. Consequently, I do not anticipate a decline in diesel retail prices next week.

Propane prices did not follow crude oil prices lower. The ratio of propane prices to crude oil prices remains low. With winter pricing dynamics and a potentially high-volume corn drying season approaching, suppliers have little incentive to reduce prices for retailers. If you haven’t yet topped off your propane tank this summer, we strongly recommend doing so before winter pricing takes effect on October 1st. Additionally, consider locking in prices for at least a portion of your upcoming winter propane usage.

As always, if you have any questions, comments, or concerns, please feel free to reach out. Have a great weekend!

Best regards,

Jon Crawford

Stuck In A Pattern

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Good morning!

Happy Friday! Crude oil prices continued to trade in a narrow range. WTI price has been unable to break through the $80/barrel ceiling. The push-and-pull is between supply/demand and geo-political tensions continued to play out this week. Even though Israel is waiting on a military response from Iran and Ukraine invaded Russian territory, the supply/demand fundamentals with crude oil won over the market’s attention this week. The crude oil trade continues to remain volatile.

China reported a lot of bearish data this week. Oil prices dropped by more than 1% when weak economic indicators from China, including poor manufacturing data and low refinery runs, overshadowed geopolitical risks. China’s oil refinery output in July dropped to its lowest level since October 2022, primarily due to thin processing margins and weak fuel demand. This marks the fourth consecutive month of declining refinery output. Brent crude fell below $80 per barrel on the data. However, the U.S. retail sales data provided some economic support, suggesting stronger economic growth in the U.S. and kept a floor on crude oil prices

There were also many data points discussed on the world supply of crude oil. China and Saudi Arabia continued to lead in Russian crude oil imports. In July, China and Saudi Arabia were the largest importers of Russian products. Imports to China and Saudi Arabia increased significantly, with China using the imports for refining and Saudi Arabia for power generation. In addition, Chinese diesel consumption declined this week. Diesel consumption in China fell by 11% in June 2024 compared to the previous year, the largest decline since July 2021. The reduction is attributed to slower economic activity and the substitution of diesel with liquefied natural gas (LNG) in heavy-duty trucks. At home, North Dakota oil production continued to decline. North Dakota’s oil production fell for the second consecutive month in June, marking a decrease of 22,500 barrels per day. The state has struggled to maintain production levels since hitting a peak in September 2023. Also, the EIA reported a surprise build in crude oil inventories. U.S. crude oil stockpiles unexpectedly increased last week after six consecutive weeks of drawdowns. Gasoline and distillate inventories also fell more than expected, reflecting fluctuating supply and demand dynamics. In addition, the International Energy Agency (IEA) continued to pour cold water on crude oil prices. The IEA reduced its forecast for global refining activity growth for this year and next, citing weaker-than-expected performance in the first half of 2024.

In the local Chicago market, gasoline prices plummeted from their highs over the past month. The Joliet refinery is coming back online. Distillate prices continue to remain flat based on a supply tightness. I do expect gasoline prices at the pump to fall next week. Diesel prices will probably remain steady.

Propane prices again remain steady. We are getting closer to winter pricing dynamics and suppliers are allowing percentage to crude ratios to increase rather than cutting prices. There is still room for propane future prices to run higher even with WTI crude oil price holding below $80/barrel. I still suggest that everyone top of their propane tank by end of September and contract some propane for the upcoming winter.

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

Best regards,

Jon Crawford

Roller Coaster of a Week

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Happy Friday!

This past week has been one of the most volatile trading periods in recent years. The U.S. stock market entered correction territory, and crude oil prices fell to one-year lows. A significant factor in this turmoil was the unwinding of a “yen carry trade” with the Bank of Japan. The resulting cascade of options liquidations triggered a massive selloff in the Japanese stock market, which subsequently impacted the U.S. market. Additionally, weaker economic data from both China and the U.S. exacerbated the situation, leading to a dramatic collapse on Monday. However, this downturn created one of the best buying opportunities for long crude oil positions, with many traders stepping in and preventing WTI from falling below $70 per barrel.

By Tuesday, markets began to recover as investors recognized that the selloff was overdone and that economic data was not as dire as initially feared. On the supply and demand front, the U.S. reported another substantial draw in crude oil inventories, while geopolitical risks reached an all-time high. These factors contributed to a significant rally throughout the remainder of the week, pushing WTI crude prices to close higher than the previous week, along with major stock indexes.

Geopolitical tensions escalated further as Ukraine received F-16s from the U.S., leading to increased bombings between Ukraine and Russia, as Ukraine launched a major offensive. Meanwhile, Hamas selected Yahya Sinwar as their new leader, a figure involved in planning the October 7th attack on Israel. This development makes the possibility of a ceasefire with Israel highly unlikely. Iran has yet to retaliate for the assassination of Haniyeh but has indicated that they will. In response, the U.S. has deployed a new aircraft carrier to the region, along with additional missile defense systems in Israel. The potential for an escalation of conflict in the Middle East remains extremely high.

Moreover, the world has been on edge with reports of a planned assassination attempt against Donald Trump and a terror plot at a Taylor Swift concert this week, adding to the global unrest. The heightened geopolitical energy is placing additional upward pressure on oil prices. Any significant disruption could push global crude oil supplies into deficit. U.S. producers continue their disciplined approach to maintaining production levels, which supports higher prices. Given these factors, I do not foresee another significant collapse in crude oil prices in the near future.

In local markets, the Mobil refinery in Joliet continues to face challenges, leading to tight supplies in the Chicago area. This tightness has now extended to the Group market as well. Volatility remains high, with diesel prices still elevated, although gasoline prices have started to ease. I anticipate that gasoline prices at the pump will begin to decrease in the coming days.

Despite the collapse in crude prices, propane prices did not decline as expected. Propane futures remain strong, with no significant inventory builds last week and early indications of a colder winter emerging. Once again, we strongly recommend that everyone fill their propane tanks now and consider contracting propane for the upcoming heating season.

As always, if you have any questions, comments, or concerns, please do not hesitate to contact us.

Best regards,

Jon Crawford

Ending Where We Started

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Good Morning!

Happy Friday! This week, crude oil prices followed a bell curve, ending where they began after a mid-week spike. Economic news from around the globe overshadowed any geopolitical risk premium. Despite some complexities in the details, crude oil prices are struggling to find support. China reported weak manufacturing data and low imports. The Federal Reserve announced that a rate cut is possible in September. Additionally, the U.S. unemployment rate rose to 4.1%, with only 175,000 jobs added in July, signaling economic weakness and lower demand for crude oil. OPEC+ decided to continue unwinding their supply cuts, contributing to a bearish sentiment.

However, some details suggest a different outlook. This week, Israel assassinated Ismail Haniyeh, the political leader of Hamas, in Iran. This action halted ceasefire negotiations and almost guarantees a military response from Iran, causing crude prices to spike. Traders adjusted their futures positions to long on crude oil. OPEC+ also indicated that cutting production is still an option if crude prices drop in August, and Russia is pumping crude at its lowest level in years. Producers are disciplined in avoiding oversupply, leading to an oversold market with potential buying opportunities. I do not expect crude prices to drop below $70 per barrel.

The Mobil Joliet refinery in Illinois is facing issues restarting after a tornado-induced shutdown a few weeks ago. This delay has caused a spike in regular gasoline prices and a significant increase in reformulated gasoline prices. The shortage prompted the Federal EPA to issue a waiver allowing counties designated for reformulated gasoline to purchase regular gasoline until inventories are replenished. Gasoline and diesel prices are expected to remain higher until the Joliet refinery is fully operational.

Propane spot prices have slightly decreased from their peak but remain strong compared to crude oil prices. Propane futures are robust based on inventory levels and predictions of a polar vortex this winter. Home heating customers are advised to fill their propane tanks this summer and contract for the upcoming heating season.

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

Best regards,

Jon Crawford

Trap Door or a New Floor?

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Happy Friday! This week, crude oil prices experienced significant fluctuations, with WTI crude dropping below $80 per barrel for the first time in several weeks. The $80 per barrel mark has been considered a psychological support level. The decline in crude prices was primarily influenced by expectations of the Federal Reserve cutting rates in September, weaker-than-expected economic data from China, and the potential for another ceasefire agreement between Israel and Hamas. Although these factors were interpreted as bearish, there are inconsistencies in the details.

The anticipated Federal Reserve rate cut has already been factored into the market for over a month. Consequently, the recent sell-off based on Federal Reserve data appears to be an overreaction. The economic data from China was indeed weak, prompting China to lower its borrowing rates. However, China has a history of manipulating its currency to remain competitive globally. As the United States approaches a presidential election, China is prepared to engage in trade disputes with a lower yuan valuation. Despite President Biden’s announcement of a potential ceasefire deal between Israel and Hamas, Benjamin Netanyahu, in his speech to the US Congress this week, did not mention any such deal.

A closer examination of these three points suggests that the recent drop in crude prices is a temporary anomaly. Similar patterns were observed last month, with prices quickly rebounding. Once WTI prices fall to around $78 per barrel, traders tend to clear positions and buy back in. Therefore, I believe crude oil is once again oversold. The bullish data for crude oil prices this week was robust. The US economy grew at a 2.8% rate, exceeding expectations. The consumer economy in the US shows no signs of slowing down. The EIA reported another drawdown in crude oil inventories nationwide, and the Federal Reserve’s PCE number aligned with expectations. Without any significant contraction in the US economy, I do not foresee a path to lower oil prices. Oil companies continue to reduce oil rig counts to maintain steady production levels. I firmly believe that $80 per barrel is the floor for WTI crude oil prices, and recent events are likely a temporary anomaly.

In the local Chicago market, Mobil announced plans to restart their Joliet refinery this weekend, with refined products expected to start flowing in early August. This news caused gasoline and diesel spot basis prices to drop. While gasoline spot prices dipped, diesel spot prices did not fall as much as anticipated due to tight diesel inventories going into the turnaround season. Additionally, the Midwest is predicting a large harvest this season, which will increase diesel demand and pressure supplies this fall.

Propane prices remained stable despite the dip in crude oil prices. The EIA reported a small build in inventory this week, which offset the previous week’s large build caused by Hurricane Beryl closing exports rather than increased production. I expect propane prices to continue trading within a narrow range. Propane still offers excellent value compared to crude oil prices. I recommend filling your tank this summer and locking in prices for the upcoming heating season.

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

Best regards,

Jon Crawford