Global oil markets are facing a supply-driven shift as increased crude production from non-OPEC+ nations, notably the United States, threatens to outpace slower-paced global demand growth. Despite OPEC+’s pledge for deeper output cuts, traders remain skeptical about their effectiveness in eliminating the surplus fully. This has led to the first annual decline in crude oil prices since 2020, defying expectations of a post-pandemic recovery.
Speculators, tightening their grip on the market, have fueled price swings detached from fundamentals. Various indicators suggest weakness, including a bearish contango structure in the Brent futures curve and the most bearish sentiment among speculators in over a decade. The market appears to be in a ‘show-me mode,’ demanding substantial stock draws and stronger fundamentals before renewed buying interest.
Challenges persist for OPEC+, particularly in navigating the sensitivity of US producers to oil prices. Record US crude production and expectations of a new all-time high in 2024, along with contributions from Brazil and Guyana, further complicate the supply-demand balance. Geopolitical risks and uncertainties surrounding OPEC+’s management of the surplus add complexity to the market outlook. You can take a deeper dive into this topic at this link.
Against that backdrop, here are some morning market thoughts from Flashpoint’s Darius Lechtenberger:
“WTI crude oil and refined product prices are trending upward in early trading. Optimism regarding the Federal Reserve cutting interest rates in 2024 and continued geopolitical strife in the Middle East are supporting crude oil prices. China could also play a major role in providing price support for crude oil in 2024. Reuters reports that China’s 2024 crude oil import quotas are 60% more than last year! However, expectations of ample oil supply in the first half of 2024 are keeping a lid on crude oil prices ahead of OPEC+ plans to hold a Joint Ministerial Monitoring Committee (JMMC) meeting in early February. With Angola deciding to leave the cartel and with the current weak crude oil market fundamentals, is it possible that OPEC+ is growing uneasy over losing market share while maintaining voluntary production cuts of 2.2 million bpd for 1Q24? Crude oil drawdowns are expected to continue as the new year begins while gasoline demand looks to continue to be solid, even though reporting agencies will probably continue to paint a picture of withering demand. It is also expected that U.S. crude oil’s record-breaking run of production could start to decline a bit. As expected, propane prices moderated yesterday after last week’s upward price surge.”
Let’s take a look at some year-ending charts as we bid 2023 farewell. First up, propane’s relationship to WTI crude oil for 2023:
We ended the year with propane being over 40% the value of WTI, and while that is still on the lower side of historical averages, it was the first time since September where both Conway and TET were north of 40%. That’s also where we will begin 2024, whereas we began 2023 with both Conway and TET north of 47%, or at least, those levels were reached in February of last year. Next, let’s take a look at the daily averages closes at both Conway (left) and TET for 2023:
Both TET and Conway topped $.9000/cpg in early 2023. The low average for the year for Conway hit on June 30th, at $.5100/cpg, whereas the low for TET was $.5300/cpg, which it on July 3rd. We saw a spread of over $.4000/cpg from the in-year average high to low. In 2022, that spread was over $1.00/gallon at both hubs. Lastly, here are the monthly propane averages since 2006, with December’s averages being a few cents higher than where November closed, but the monthly low for 2022 at Conway was set in June at $.5477, and the TET low was also in June at $.57260.
No new weather video from BAM today, with their most recent video recorded on Monday, and BAM saying no thoughts have changed from that update (which I emailed to you in Tuesday’s Buzz).