Starting To Peak???

Good morning!

I hope this message finds you safe and warm.  Winter is upon us!  Crude prices hit their highest level since 2014.  The geopolitical events in the Middle East along with Russia/Ukraine are adding some risk-premium to the bullish sentiments around crude oil supply.  In addition, OPEC has been unable to fully produce their quotas the past two months.  However, supplies look to surpass quotas moving forward and the US crude oil production is in full swing.  I expect to see crude supply move to surplus by Q2 of this year.  In addition, interest rates are probably going to increase sooner than later.  The faster interest rates rise, the cheaper crude will be to purchase on the open market.  So one can hope that has interest rates go up, crude prices will come down.  Crude prices ended the week off of highs based on supply forecasting and the strength of the dollar.  And China CUT interest rates at a time when most are raising!  These actions all are giving pause to this unreliable recent rally in crude prices.  However, the market is on pins and needles right now, so any further events that are interpreted as bullish could try and push WTI crude price to $100/barrel!  It’s truly mindboggling when you take a 20,000 foot view.  Part of me is seeing the market behave in a “pump and dump” scenario.  Banks and hedge funds are pumping the price up to dump it before full supply/demand economics take over.  I also saw that Goldman Sachs reported a Q4 loss and they are VERY long on crude oil hedge contracts.  As I’ve been writing, it’s time to get your popcorn and sit back!

In local retail news, I expect to see gasoline retail prices hold at or above $3/gallon for some time yet.  And I would also expect to see diesel retail prices near $3.50/gal.  Hopefully we start to see prices ease by Memorial Day this year.

Propane demand has been very strong with cold temperatures.  Supplies have remained steady and prices relatively stable.  Fingers crossed, and we could be going into a calm February for the first time in a few years.  If the crude markets play out as anticipated, I am seeing lower prices for propane next year.  In addition, China is canceling shipments of propane due to high prices which will help build national inventories putting downside pressure on future pricing.  As a reminder, please make sure your driveway is plowed and there is a clear 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

Russia and the Inflationary Wildfire

Good morning,

I hope this message finds everyone well.  WTI Crude prices broke higher through $80/barrel as inflation data continues to run wild.  The market seems to be shrugging off any mention of the FED raising rates until something happens.  We seem to be stuck in a “I’ll believe it when I see it” attitude towards the FED.  Until inflation starts to cool, I’m afraid that energy prices are going to remain high.  Although true supply/demand economics are pointing towards surplus supply in the first half of the year, for now inflation has the market.  I believe the FED will need to act hard in order to put any stop to the rising prices.  At this point, I don’t think a quarter-percent rate increase will even move the needle.  In addition to our inflation troubles at home, the US and Russia are stalled in talks discussing a potential Russian invasion of Ukraine.  Both sides are keeping tensions high and coupling the tension with potential supply disruptions in the Ukraine if an invasion happens.  The geopolitical issues are baking “risk premiums” into the price of crude as well.  So, in order for crude prices to pop and drop, I think we need to see swift and hard action from the FED and the tensions in Ukraine dissipate.  Until then, I unfortunately see prices staying high and slowly climbing higher.

In local news, retail prices for gasoline and diesel slowly crept higher last week.  I expect to see those prices hold and even slowly move higher with the price of crude.

Propane prices are trading in a narrow range as producers and suppliers argue over the potential heating demand for the remainder of winter versus the price of crude oil.  Propane rail shipments have been a disaster as weather and COVID brought shipments to a halt at the start of the year.  Train cars are moving again and I think we will be in better shape by end of next week.  For now, supplies are a little wonky in Wisconsin but we should all be ok.  As a reminder, please make sure your driveway is plowed and there is a clear 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

Speculation Is Driving The Bus

Good morning!

Happy cold Friday!  WTI crude oil prices pushed up through $80/barrel briefly today before retreating on a terrible December jobs report.  There is a push/pull relationship going on in the crude oil trade right now.  The facts are that the FED is going to raise interest rates, OPEC+ is continuing on path to increase production, the US is going to increase oil production, Omicron is causing a ton of uncertainty, and Libya is facing some hurdles with pipelines being shut down.  On the speculation side of the trade, many are believing that inflation is going to still outpace any increase in interest rates in 2022.  Others believe that the push to “green” energy is forcing oil companies to raise prices as they diminish investments in crude exploration.  And even more traders are believing there is going to be a supply shock to the system in 2022.  I have watched many economic scenarios play out since the Great Recession.  Although I have never watched a world pandemic play out, many of the pieces are still the same.  The trade on crude oil is being caught up in news headlines and heavy speculation based on long-term bet positioning.  I am not betting on $100 WTI crude prices, especially in a key election year.  I believe that many oil companies have slashed “exploration budgets” because they were over-levered to begin with.  Developing deep-water wells is much more expensive and dangerous than maximizing crude oil harvesting on land.  I also don’t believe that jet fuel consumption is ever going back to pre-pandemic levels.  World business has forever changed.  Companies are experiencing the savings of not needing everything to be in person all the time.  Travel for work is never going to be at the same level.  I also know that many in OPEC invested billions in crude exporting equipment and will need a return on investment.  I see too many hands trying to get in the cookie car by mid-year 2022.  I think the “hype” of the trade will keep prices higher in Q1 and Q2.  But I think crude prices are ripe for a correction going into the second half of the year.  Even if Omicron becomes that last major variant in the pandemic, I don’t see where demand is going to outstrip supply that is coming online throughout the year.  Patience and cooler heads are going to win this year on the crude oil trade.

In local news, retail prices for gasoline and diesel are slowing climbing higher again.  I expect to see these prices hold and possibly go higher in the coming week.  Also, with the extreme cold, many stations have blended their diesel fuel with more winter components so I expect retail diesel prices to move higher.

Propane prices have leveled off as we move into the heart of winter.  Although demand will skyrocket back in the coming weeks, supplies are in better shape.  However, any Polar Vortex lasting longer than five days will strain the system and push prices higher faster.  For now, please make sure to keep an eye on your tank if you are a will-call customer and call in at a minimum of 25%.  We are very busy and we want to make sure we can efficiently and safely take care of all our customers.

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

Best regards,

Jon Crawford