Good morning!

Happy Friday!  First of all, our thoughts and prayers go out to everyone affected from the earthquake disaster in Hungry and Syria.  The devastation and loss of life has been almost incomprehensible.  Part of the devastation did affect crude oil exports out of hungry that feeds China, so WTI crude oil prices rebounded from approaching $70/barrel and started heading towards $80/barrel.  In addition, Russia announced that they will be cutting 500k barrels per day of production to try and prop up prices.  Although these major events are of great concern for higher oil prices, the bearish news seems to be shrugged off and a disconnect is forming.  The dollar is still very strong and I do not believe the FED is done with raising rates or that a “deflationary” period has begun.  The attrition at companies continues to be strong and is spreading beyond tech companies.  Credit card debt is piling up on Americans not wanting to change lifestyles post Covid.  In addition, mortgage refinancing was up 18% when 30 year rates hit 5%!  Home owners are trying to refinance to gain access to HELOC money, and we know those HELOC rates are higher than 5%.  Eventually, the US consumer is going to be cutting back on spending. The money is starting to run out.  I believe that the FED will hit 5% on rates or even go higher.  Companies are “taking the medicine” as they say, but consumers are not throwing in the towel just yet.  In addition, the US continues to build crude oil inventories, gasoline inventories, and diesel inventories at only 87% refining capacity.  We are building inventories in the US and more refineries are coming online within six months.  Another big disconnect was possible response from OPEC to Russia’s announced production cuts.  The move was announced without the approval of OPEC.  I believe that OPEC will respond to Russia by increasing production and possibly even removing Russia from further OPEC meetings.  No one in OPEC likes to have a country act alone.  Venezuela crude oil is also starting to come to market along with crude from Mexico.   And refining capacity is gaining momentum around the globe.  I truly believe that the crude oil markets are disconnecting from the facts.  But that’s the nature of markets!  Markets are irrational, and separate from the economy.  The next two to three months will really be telling.

In local news, gasoline and diesel cost have been on a roller coaster due to local economics coming out of winter.  Many suppliers are trying to figure out how much gasoline to produce as the vapor pressure requirements change in March, yet demand could be a dud this summer.  Diesel prices are bouncing around as well.  Because of the roller coaster in local economics, consumers will experience retail prices all over the map for the coming week or so.

Propane prices are starting to rise, even though inventories are sitting at 40% higher than last year with record production and exportation.  The winter has been mild compared to last year and I believe suppliers are going to raise margins to retailers in order to make up for loss of sales.  But watch out for April.  I think once winter contracts clear end of March, propane prices will start to fall as suppliers compete for gallons.  If we continue at the current pace in propane production, we should experience some great summer fill pricing, as well as lower energy cost for next heating season.  As always, please make sure to plow/salt your driveway, keep a clear path to your tank, and trim any trees overhanging your driveway to ensure a safe and efficient propane delivery.

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

Best regards,

Jon Crawford

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

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

Good morning!

I hope this email finds everyone well.  I wanted to thank all of our customers for another successful year in 2022.  Although 2022 was very difficult, volatile, and confusing at times, we were able to navigate and be prepared for 2023.  The last two weeks of the year are very light with trading on the exchanges, so commodity pricing is a bit wonky.  WTI is ending the year under $80/barrel.

I have decided to offer some predictions for 2023.  Now remember, commodity price predictions are probably the most difficult predictions to make.  And those that win are usually lucky!  My predictions are based on my personal research and looking at the 20,000 foot view of the world.

I believe there will be opportunities for lower oil prices in Q1 and possibly into Q2 as China manages their first nationwide Covid outbreak.  I also believe there will be a pullback in the economies of the US and Europe.  The combination of the two aforementioned scenarios could cause a bit of demand erosion that could pull down crude prices.  I also believe the FED will keep their foot on the gas or at least coast at current rates through 2023.  The FED actions will also support lower crude prices.  I am calling a bottom in WTI crude oil prices around $60-65/barrel.

On the flipside, if China’s outbreak doesn’t last very long, crude oil prices will find some legs.  If the US and Europe find a way to keep the economy on a soft-landing trajectory, crude prices will also gain some momentum.  Russia is continuing to threaten further oil production cuts, but Saudi Arabia seems to be more cozy with the United States.  Therefore I don’t believe Saudi Arabia would let WTI crude prices soar above $100/barrel.  All of that being said,  I believe that WTI crude oil prices have a ceiling price of around $95-100/barrel.

When comparing my future calls for WTI crude prices to the current price, WTI crude price is about smack-dab in the middle of my call range.  So for those customers that like to hedge their bets for the coming year, I do believe that purchasing a small amount of futures during the current pricing structure is not a bad place to start.  The strategy for 2023 is going to be cost-averaging and taking advantage of the price dips.  The coming year will be very volatile just like 2022, so we will need to be nimble and ready to pounce on opportunities when they arise.  Any opportunities for purchasing on a dip will be short lived throughout the coming year.  I am not advising any hedging into 2024 due to extreme volatility and the war in Ukraine.  If there is a settlement between Russia and Ukraine, crude oil prices will probably drop $10-15/barrel on the far futures market.  Therefore, no one wants to be holding a bag of 2024 futures if a major sell-off occurs.

I also believe that drivers will experience retail prices at the pump continuing to move in volatile ranges.  The United States is still very tight on production with a lack of refining capacity.  If a recession hits, refineries will be able to store more product and prices at the pump will fall.  But if the economy stays stronger than anticipated with a soft landing, refineries will continue to have no room for error.  My advice is to accept in advance that the prices at the pump will move around at a very rapid pace.  However, I do not believe diesel retail prices will climb above $5/gallon unless we lose another major refinery due to a massive accident for an extended period of time.  Gasoline retail prices will probably float in the $2.50-$3.50/gal range.

Propane production continues to be robust and exports remain at full capacity.  We could be experiencing the once-in-ten-year event where the rack price of propane stays lower than the contracted prices for 2022-2023 heating season.  Propane inventories are starting to deplete a bit, but not at a pace fast enough to cause a massive price spike.  There is still an opportunity for propane rack prices to break out higher in January and February.  But once again, I don’t see any reason to panic that the country is going to be strained on propane inventories.  The good news is that I believe propane retail prices will be around the $1.75-$2.25/gal price point for the 2023-2024 heating season.  In comparison to other heating commodities and their future price predictions, the predicted retail cost cost of propane will be a great value for those customers using propane to heat their homes.

As always, if you have any questions, comments, or concerns, please feel free to give us a call.  I wish all of you a safe and enjoyable New Year’s celebration, and I hope 2023 is full of laughter and prosperity for everyone!

Best regards,

Jon Crawford

Good morning!

Happy Friday!  WTI prices tumbled this week even as OPEC+ announced they will keep current production cuts in place.  China announced that they will loosen many of their Covid curbs, but the markets are not looking at the polices as super positive.  Markets believe the opening up with cause a massive wave and add another headwind to the China economy.  China economic data is already looking bleak and the opening up is not necessarily going to change the trajectory of the economy.  The world is very cautious on China right now.  The United States built a massive amount of refined product inventory this week.  The EIA report showed that the economy is starting to cool and diesel supplies are in better shape in December than November, just like I predicted.  The “diesel shortage” was a pure political play.  Most major banks are calling for a recession in 2023.  Some are calling for three straight quarters of decline with Q4 2023 as the start of a rebound.  For now, WTI has given up most of its’ gains for the year.  If WTI falls below $69/barrel, I would expect futures purchasing to pick up, including the US Government buying some Strategic Reserve Oil.

In local markets, gasoline and diesel prices plummeted for almost two weeks straight before firming up hard yesterday.  The increase in cost yesterday came on the heels of 14k barrel spill of crude oil from the Keystone pipeline in Kansas.  The spill is one of the largest on US Oil soil in years.  The spill will affect East of Rockies refined production for about two weeks.  The news caused gasoline and diesel prices to rise. But the trend on gasoline and diesel has been a sharp decline.  We were experiencing what we call the “falling knife” scenario.  Prices were falling faster than demand could keep up.  I expect to see retail prices balance out next week.  We are currently experiencing some of the lowest retail prices since the start of the Ukraine war in February.  Remember, as you see diesel retail price spreads on price signs, the cost of winter treatment is 20-30 cents/gallon.  So I wouldn’t be surprised to see some prices that far apart.  If you are buying diesel, always remember to ask what blend the seller is using.  I do not believe you can safely operate into single digits or below zero without blending in #1 ULSD.

Propane continues to baffle us.  Although there was a draw on inventories this week, propane inventories are looking to be healthy for winter.  Again, propane threw a head-fake just like last year.  We headed into summer and continued through the first half of summer with dangerously low inventories, only to build back to healthy levels during cold months.  The trend has been very difficult to manage and predict.  We never want our customers to be left holding the bag.  I still believe that propane prices will start to trend higher once the demand kicks in towards end of December.  I am predicting a difficult January and February.  As the snow starts to fall, please remember to have your driveways cleared and an available path to your propane tank to ensure a safe and efficient delivery.

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

Best regards,

Jon Crawford

Greetings!

Winter has finally arrived in Wisconsin!  December is looking to be colder than last year with more snow and January is looking to be colder than normal.  And February could treat us to some nice Polar Vortex action.  But that’s a long ways off and we want to think about the holidays and fun stuff!  🙂  In addition to “fun stuff”, the G7 passed an initial resolution today to cap Russian imports at $60/barrel which is much lower than the current Brent price of around $86/barrel.  At first blush, the announcement looks scary and bound to cause retaliation from Russia such as cutting off oil  exports.  However, the announcement is more of a “nothing-burger” and face-saving.  Russian crude actually trades at a lower rate to Brent.  Russian crude is currently priced around $48/barrel.  So there is plenty of upside for Russia at the proposed cap of $60/barrel.  Basically, there is no Russian crude being sold above $60/barrel right now and when reading the tea leaves of the world economy, the chances of the cap being enforced is fairly slim.  In addition, Russia already announced that they would work with everyone if the cap is realistic.  And $60/barrel is a realistic number.  So for now, enjoy the news and watching everyone talk about about the G7 is gonna “stick it to Russia”, when in fact, the cap is a “nothing-burger” in my opinion.  In the US, WTI crude prices rose again above $80/barrel, but supply of gasoline and diesel are in better shape causing a spot market price collapse.  Therefore, future contract pricing finally moved into contango from backwardation allowing suppliers to possibly store extra product for future delivery.

In local news, gasoline and diesel prices completely collapsed post harvest in America.  Gasoline retail price is nearing $2.99/gallon.  But diesel retail prices are all over the map with spreads as much as $1.00/gallon.  There is a reason for these spreads.  As we go into winter, many suppliers like myself, try to offer the best blended product to meet the everchanging and hard to predict winter weather.  In preparation, many suppliers blend their diesel with additives and #1 ULSD to help with maintaining optimum operation of vehicles in cold weather.  The usual spread in price between #2 ULSD and #1 ULSD is around 60 cents per gallon.  The spread right now is $1.25/gallon!  Therefore, an optimal blend of 70/30 or 80/20 with #1 ULSD now costs between 25-40 cents/gal more!  So always make sure if you are buying diesel in the winter to check what the blend is at the supply point.  Some retail stations do not blend properly and can cause issues when temperatures get close to zero degrees and below overnight.

Propane prices continue to hold steady with healthy builds in inventory.  However, with the cold weather coming and petrochemical demand possibly increasing, propane prices are primed in a moments notice to jump 30-50cents/gal.  Although board price is cheaper than contract price right now, we have five months of winter left to go.  I expect propane prices to really pop in January and February.

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

Best regards,

Jon Crawford