Well, as I wrote since the last pull back in crude prices, I’ve stated that some key issues needed to play out in order for us to gain a potential predictable direction for crude prices. Unfortunately, a triple whammy of events struck this week causing a massive gain in crude prices. And I can safely say that the prediction for prices is now higher for the remainder of the summer. OPEC has only decided to add an additional 1M barrels into a market that many believe is undersupplied by as much as 2-2.5M barrels. The analysis caused crude prices to spike, especially WTI as the action puts more pressure on U.S. crude production. Then on Tuesday, Trump announced that he would not ease into allowing countries curtailing their Iranian crude purchases starting in November. He called for “absolute zero” purchases. The action caused a massive spike in crude prices, more so in WTI due to the additional pressure on U.S. production. And then today, the EIA inventory report posted a massive draw of over 9M barrels in crude inventory. The announcement caused crude prices to rally hard once again, with WTI prices closing in on less than a $5/barrel spread to Brent. WTI has closed in from over an $11 spread to Brent, to now just under $5. The closing of the gap will greatly affect futures pricing for refined products here in the U.S. Basically a 10-15 cent/gallon premium has just been added into the market. I hate to bring bad news, but high energy prices are going to be here for some time unless Russia and Saudi Arabia greatly increase their production capacity. The U.S. is pretty much at max production capacity and any supply disruption is going to have major upside consequences on market prices.
In local retail news, I would expect to see summer gasoline prices to stay around $2.75/gallon and diesel prices to stay above $3.00/gallon. Unfortunately with all the events of this week, crude prices will not be able to unwind fast enough to offer relief in prices this summer.
Propane prices are also starting to take off. We are still at the lowest price of the year and I highly suggest that all customers fill their tanks now. We also have released our next season’s heating contract pricing. We suggest that everyone contract their propane for next year given all the supply and geopolitical issues in the market. Please call the office to schedule your summer fill and lock in your heating contract.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Jon Crawford – Pres.