Yesterday, we asked our readers to take the “crude bet” and give their opinion of where prices are headed next. As we mentioned, our supply and marketing team is pretty evenly split. Participants were asked “Will WTI crude hit $60 or $80 first?” The results are in and 63% of survey participants think prices will reach $80 next while 37% believe prices will reach $60 next.
Like many of you, I voted that WTI crude prices will hit $80 before they hit $60. Market sentiment has a major impact on markets, and the vast number of analysts predicting $80 could drive sentiment high enough to keep prices supported. $70/bbl has historically been very rare, as I wrote a few weeks ago. Markets tend to speed through the $70s on their way higher or lower, and right now prices are speeding higher. By “speed” I mean a period of 3-9 months, which is fast for that level of price change. The biggest helper in getting to $80 will be the Syncrude outage – if it truly lasts for all of July, WTI prices will almost certainly rise to incentivize supply going to Cushing, perhaps even rising higher than Brent crude.
The biggest risks to my prediction are a) if the Syncrude outage is resolved faster than expected, or b) the US-China trade war. If China follows through on threats to put tariffs on American oil, it could put major downward pressure on prices – probably not enough to get to $60, but it would take out our chance to hit $80 this year. If we do hit $80, it will probably be in the next few months, before summer demand falls off and crude inventories begin rising in October. If prices do hit $60 first, I don’t think it will be for long, as markets are simply too tight right now to justify oil prices in the $50s. Conversely, I don’t think prices would stay above $80 for terribly long, though looking forward to 2019 and 2020, $80/bbl oil could potentially become the norm due to changes in maritime fuel specs.
I also voted that WTI will reach $80 next. In addition to Alan’s reasoning, I also think OPEC is collectively pushing for higher prices. Many OPEC member countries rely heavily on revenue from oil production (i.e. state-owned companies such as Saudi Aramco and PDVSA). Although the group was willing to increase production recently, which, in theory would put downward pressure on prices, I believe the group will continue to take steps to keep prices elevated (at least in comparison to 2015-16 prices).
Today’s Market Trend
Analysis by Madi Burton
The market is experiencing some sell-off this morning in the wake of tariffs and increased production from Saudi Arabia and the UAE. Crude lost over a dollar during yesterday’s session following a bearish EIA report. This morning, crude prices are down another 34 cents to trade at $72.60.
Fuel prices are tracking crude lower. Both products made small gains yesterday, but have retracted those gains this morning. Diesel has lost 1.5 cents and is trading at $2.1633. Gasoline prices have decreased by 2.7 cents to trade at $2.1019 currently.
The U.S.-China trade war officially began at 12:01 this morning and Beijing is calling it the largest trade war in economic history. The U.S. imposed 25% tariffs on $34 billion of Chinese goods including mostly industrial items and components. China immediately retaliated implementing equal tariffs on a list of goods issued last month including pork, soybeans and electric vehicles.
Prices are feeling some downward pressure this morning as a result of the first shot fired in the trade war. Although oil and refined products were not included in round one of tariffs, many believe they could be in the next round if the trade war continues to escalate. If tariffs are imposed on U.S. oil, prices will weaken as additional supply will be trapped in the U.S. rather than being exported to China.
In reality, U.S. barrels will not remain “trapped” on American soil if China were to cut U.S. imports; however, the barrels would likely be sold to countries with other supply options, forcing American oil prices to fall lower to be competitive. Additionally, China would likely increase Iranian oil imports that no longer have a home due to U.S. sanctions, further deteriorating the relationship between the world’s two largest economies.
EPA Chief Resigns
Yesterday, news broke that Scott Pruitt resigned from his position as the EPA Chief. This came as no surprise considering numerous negative reports on his management decisions and ethics. After announcing his acceptance of the resignation via Twitter, President Trump revealed EPA deputy Andy Wheeler as the successor. Wheeler, given his experience on the Senate Environmental and Public Works Committee, as well as an energy lobbyist, is highly likely to carry out the rest of Trump’s agenda with less issues than Pruitt.
First Atlantic Hurricane of the Season
Over the course of only 18 hours Thursday, a tropical storm located southeast of the Lesser Antilles grew to a category 1 hurricane. Hurricane Beryl is the first Atlantic hurricane of the season. Although the hurricane is not expected to hit U.S. territory, it’s a good reminder that hurricane season is among us. If you haven’t already, we strongly advise you be aware and prepared for these events. Register today for our upcoming webinar to learn best practices to ensure fuel in an emergency situation