Truth in Numbers?

Good morning!

Happy Friday!  A lot of information was released this week.  And by information, I mean numbers.  Numbers seem to be the name of the game: number of people being let go from companies, numbers on earnings reports, numbers of oil rigs active, number of people tightening on spending, number of tanks being sent to Ukraine, number of propane barrels in storage, number of people looking for jobs, number of people being hired, number of people in China traveling and going back to work, etc.  At the end of the day, there is a huge argument being made whether or not the US will go into major recession or land softly.  What’s interesting about each argument, is that both agree on recession, just a difference in how bad the recession will be.  Well, let’s take a look at a little more of the data.  Housing market value is showing signs of weakness as consumers tighten up their spending.  Therefore, if push comes to shove and people need cash, because they overpaid for their homes, they might be upside down on their mortgage and unable to obtain cash.  And even if someone was able to take a HELOC out on their home, the interest rates will be probably 7%+.  Another interesting fact is that the US has hit the largest amount of credit card debt in history and the average credit card payment is being paid at 19% interest!  The stat is saying for example, those who pay their credit card bill each month with no interest are the low end, and the high end could be near 29%.  So out of the entire United States, the average consumer is paying 19% on their credit card debt!  Even at our office, consumers are starting to pay for their fuel on two credit cards.  The situation is probably the most telling of where we are heading.  Consumers have been continuing to try and live as they did during Covid times with cash flowing in and employees holding the power over businesses.  But as most trends go, situations change.  Most major companies, including small businesses have gone through attrition of 5%-40% of their workforce!  Many of these workers that were let go are going into the service industry that has continued to be healthy, but will start to diminish as consumers tighten.  And in addition, inflation continues to affect food prices.  And some of these employees that were let go might try and start their own business eventually which will bring the economy out of recession in the coming couple of years, but that takes time.  Now, where does all this data lead to for crude prices?  Well, the most deep ocean drilling rigs have been put to work over the past six months in almost ten years.  Norway is at full steam ahead in production.  America is full steam ahead in production (still lacking in refining, but that will get better), and OPEC+ is starting to get annoyed with Russia and their taking of market share in India.  So the price of crude should relax in the first half of this year, and might recover if economies around the globe start to bottom out and stabilize.  As I have been writing, I believe the numbers for inflation are going to finally be accepted that they are really showing the areas of true consumer spend are still going up, and the goods that are decreasing in price are mostly being used by companies that are going through attrition.  I don’t believe we will start to dig out of the hole that forms in 2023 until first part of 2025.  We will have a presidential election in 2024 where the economy will be front and center.  I think next year is going to be very telling on where America heads for the second half of this decade.

Local retail prices on gasoline continue to hover around the $3.00/gallon and diesel retail prices are around $4.25/gallon.  As the deep freeze comes next week, it’s very important for anyone purchasing diesel to make sure that you are purchasing diesel blended with #1 diesel.  Regular diesel with winter additive only will not make it through some of the days next week.  I understand that blended fuel with #1 costs more, but I believe that fully blended diesel is needed.  Please make sure to speak with your local supplier or gas station on what type of winter diesel they are selling.

Propane continues to surprise everyone.  Exports remain at record highs, demand is at the same levels of last year, yet production continues to be incredible.  The country is now sitting on 30-40% more propane this year compared to last year.  Although rack pricing is cheaper than contract pricing this year, when you look at the ten year average, those who have contracted propane for their heating needs are still ahead.  I’m expecting propane prices to just fall off a cliff starting in April/May.  I believe that next year’s heating cost will be lower than this year.  As a reminder, please make sure to keep your driveways clear of snow/ice, trim any branches that are blocking the driveway, and have a clear path to your propane tank.  These actions will ensure a safe and efficient delivery of propane during the busy season.

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

Best regards,

Jon Crawford

Too Good To Be True

Well, we questioned how long the crude oil correction downward last week would last.  Unfortunately not very long.  The market this week was in full up-swing mode and brought everything along with it, including the price of crude oil.  Although large businesses continue to cut jobs at over a 20% clip and earnings have not been great.  And then couple that with a slight dip in inflation and unemployment, and you would think we are having the rally of the year!  I am not believing that the FED will cut rates in 2023.  The United States has been addicted to low interest rates for too long and Powell will not make the mistake of allowing inflation to run higher again.  When looking at inflation, the areas that are seeing increased cost are the areas Americans are looking to spend this year: travel and food.  Credit card debt hit a record average of 19% interest.  Plain and simple, the American consumer is running out of money.  The consumer was very used to a certain lifestyle coming out of the pandemic and unfortunately I think the lifestyle is going to end with a bit of pain.  Markets are very irrational and right now the markets seem to be grasping at straws to move higher.  Crude oil is always a wild card, but when looking at China going fully open and having to deal with multiple large waves of Covid before they calm down to a normal like in the US, coupled with incredible production of crude oil on the stateside and many more sources of crude coming online in 2023, I think crude oil is being setup to fall.  How far crude will fall is yet to be determined.  I’m also not sure how long this irrational market will run.  Sometimes markets get caught up in a frenzy and the party lasts longer than anticipated before the rug falls out from underneath.

In local news, gasoline and diesel prices continue to climb as Chicago refineries move barrels down to Nashville to help out the East Coast.  In addition, we are still waiting for Superior, WI as well as Toledo, OH refineries to come back online.  I think our market will be well supplied for the year as these refineries return.  Right now every little bit helps.

Propane continues it’s record inventory run.  Right now, propane inventory is 25% higher than last year.  And production is not slowing down.  I also do not expect to see production or exports slow down.  We can’t export anymore than we are currently completing, so I believe that propane prices could fall off a cliff this summer.  The good news to the consumer is that although prices on contracts might be higher than rack this year, next year’s prices are looking to be incredibly great in value compared to natural gas.

To sum up everything from crude oil, to diesel, to gasoline, to propane:  patience and cost average. Micro actions. Macro patience.  I will continue to update as 2023 unfolds.  I believe we are going to have a very interesting year.

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

Best regards,

Jon Crawford

Crude Oil Correction… Will It Last?

Happy Weekend!

As predicted last week, with the light trading during the holidays, crude was a bit overbought.  Crude oil gave up all the gains of last week and ended at the lowest price in the past two months.  The opportunity brought in a lot of buyers on Friday, especially after a decent jobs report.  But as I say, the devil is always in the details.  Many jobs are shifting around and true growth is not happening at the clip many believe.  China is not out of the woods with their Covid wave, and the Russia/Ukraine conflict is possibly approaching a path to diplomacy.  The FED made their voice loud and clear that current rates will be sticking around for quite some time.  Congress is in gridlock and attrition continues to run rampant at major US companies.  I had a call of low $60’s for WTI pricing at some point this year.  WTI has yet to break through $60/barrel at this time, but I believe there is a slight chance in Q1.  If you are trying to hedge your fuel price for the year, I highly recommend cost averaging and taking a slice at these current values.

Gasoline prices stayed fairly neutral even though crude prices tumbled.  The Chicago market is now getting shorter after being very long last month.  Diesel spot prices soared in the Chicago market this week.  When these situations occur, confusion enters the marketplace.  Customers read about dropping crude prices, but retail prices on gasoline and diesel go up at the pump.  WTI Crude Oil is traded on a global scale and gasoline and diesel are traded on a spot marketplace.  The Chicago mercantile was very long on products to end the year and are now tightening up as they move products east out of market.

Propane continues the steady trend.  Warm weather and high levels of production are keeping prices in check.  Although spot prices are cheaper than prices that most customers locked in for the season, I would like to remind customers that propane prices could still run higher in February.  And in years past, when propane spot prices sometimes climb to over $1/gallon higher than contract price, customers who contracted saved a ton of money.  Contracting is a cost average over time, and over a ten year period, those customers who contract usually come out ahead.  There is no perfect scenario in the game of commodities; especially in the new world of volatility that we experience on a daily basis.

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

Best regards,

Jon Crawford