We rang in the new year with the lowest crude oil values since August of 2017. To our surprise, those values remain the lowest seen this quarter. Slow and steady, just like a turtle crude oil managed to sneak in a 23% gain in values over the past three months. Diesel and Gasoline followed crude oils pattern, just like the good soldiers that they are. Both increasing roughly 25%, gasoline gaining a bit more than diesel.
So, why the drastic change and such volatility in the past three months?
To figure this out we need to examine the factors that cause market movement. So, let’s look a little closer at supply/demand and the economy.
Over the past 18 months OPEC has managed to make headlines with their continued threats of production cuts. There has been quite a bit of skepticism regarding the actual follow through of these cuts. In the past, greed has taken over and most of the nations that did agree to cut production have failed miserably. Over the past 6-9 months however, OPEC and non-OPEC countries have steadily decreased their production and have managed to cut 1.2 million bpd. This 3% total cut in oil production has managed to drive values up almost 25%. Though the US continues to ramp up its production, these imports, or lack thereof are killing us. Every so often, the President will take to twitter and demand that OPEC discontinue their cuts. This is usually enough to bring crude oil values down a buck or so, but unfortunately it seems to be short lived as the market rebounds a day or two later.
As much as President Trump tries to help with his tweets, the new jobs created as well as the overall confidence in the US economy that have become the norm under his leadership are only helping push crude oil values up. US unemployment is at an all-time low of 3.8%. We have watched the DOW’s steady incline over the past few years; going up over 30 points in the past three months. The Federal Reserve has also taken advantage of the stronger economy outlook, raising interest rates several times in the past year; from 1.7% to 2.5%- 1/4% of this growth occurring within the last four months. Globally, things are not as strong; and this may be our only saving grace. Considered to be one of the foremost developing nation, China, was projected to have extraordinary growth throughout 2019/2020. Well, they are a mess! Their projected growth figures have been cut three times this year, with more to come.
I honestly don’t know that we will see a lot of change over the next three months. But, as the OPEC cut agreements get closer to their maturity dates, I think we may see some excitement.
Written by Kim Leisner, Energy Sales Manager