Risk Is “Back On” For The Crude Trade

Posted on March 18, 2022March 18, 2022 by Jon Crawford

Good morning!

Happy Friday! I have been under the weather most of the week so my summary will not be as thorough. I’ve been doing my best keeping up with the slew of info coming in everyday. The week started out with WTI crude prices falling on news of shutdowns in China. Factories for Apple and other tech companies closed with Omicron surging out of control in China. The slowdown in China sent fear through the market and crude prices dropped to levels we experienced at the start of the Ukraine invasion. In addition, crude production seemed to pick up pace in the US and the FED raised rates for the first time since 2018. The invasion in Ukraine seemed to be slowing by mid-week without any more major surges. Overall, market conditions were seeming to stabilize. Then, on Thursday, crude prices ripped higher on news from the IEA that crude supplies were going to be tighter than normal, hiring was strong in the US despite record inflation, and Putin sent out messages that he’s going to try and work with China to fight to the bitter end. Crude spot prices soared over $8.00 higher to close back above $100/barrel. For now, crude prices are remaining higher with optimism of a Ukraine peace deal and China withholding support. I know that many would think that this news would lower crude prices. But, the markets are taking the stance that a ceasefire or peace deal would keep the world economies going strong with Russia still on an island. Therefore, tighter crude supplies will remain throughout the year. Without a world recession, the markets are betting on tight crude supplies regardless of what happens with Ukraine and Russia.

In local retail news, President Biden claimed this week that since crude prices dropped, the gas stations are not lowering retail prices fast enough. What the President doesn’t understand is that store owners are working off of inventories bought at many different volatile prices points. In fact, the day he said that stations should lower prices faster, gasoline cost went up 20 cents/gallon and diesel cost went up over 35 cents/gallon! As I have been writing about, gas stations are doing the best they can. Wisconsin gasoline and diesel retail prices are UNDER the national average. And consumers need to remember that Visa/Mastercard are making almost 12-15 cents/gallon at these prices, and they are RAISING rates in April! So if I was a consumer, I would be yelling at Visa/Mastercard! Visa/Mastercard are charging almost as much as the Federal Gas Tax on a transaction! Once again, please take it easy on your local gas station employees. The owners are doing their best. These price fluctuations are a nightmare and buying on the wrong day can ruin your margin for a week.

Propane prices have fallen from their highs during the first week in March. But propane prices are starting to find support due to record low inventories just like last year. The propane trade is starting to look a lot like last year. Prices might bottom out around now and then slowly increase through the entire summer, regardless of what happens to crude prices. With Europe looking to import more LNG, we could see propane inventories struggle to build this year, which in turn keeps prices high. The saving grace last winter was the lackluster crop drying season. Inventories are so low right now, I am already hoping for another lackluster crop drying season in 2022. I hope that production can surpass exports and the supply situation improves. But for now, I am skeptical on seeing low propane prices this summer. I highly recommend contacting our office and making sure that you take delivery of all your contracted gallons by end of April. That will be your best cost savings strategy for the 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 Trade Finding A Path Forward?

Posted on March 11, 2022March 11, 2022 by Jon Crawford

Good morning,

Happy Friday! Well, we experienced one of the most volatile trading weeks in the crude oil trade since 2008. Crude oil prices traded in a $25 range for the entire week! One day this week, WTI crude oil traded as high as $15/barrel on the spot higher, and then dropped as much as $18/barrel!…during the same day!… The volatility is causing disruptions in locking down future supply price. The chaos of the trade in turn makes pricing spot products much like throwing darts at a dart board. The news affecting the crude oil trade this week included many developing stories. Russia is trying to meddle with the Iran nuclear deal causing panic that the deal will go sour. Iran is saying that Russia’s desires in the deal are not in Iran’s best interest, but we have yet to see the final draft. The US also reached out to Venezuela to inquire about lifting crude sanctions on imports to the US. The US has banned all crude from Venezuela since 2018. Russia and Ukraine held a peace talk in Hungry that went south causing markets to shoot higher. But then they announced today that a potential peace deal could be on the table. The announcement today is quieting the crude market a bit. The IEA (International Energy Agency) also announced that 60M barrels of strategic crude reserves is not enough and they are prepared to do more. (I have been saying that for weeks….) UAE and Saudi Arabia are also testing the market waters by SAYING they MIGHT pump more oil just to see how the market reacts. The power of their words has much influence on the market. In the past they will SAY that they are CONSIDERING a crude oil production increase just to see the market reaction. Then they gauge their future actions based on the market response. The US continues to be strong on crude production and by the end of the week, WTI crude is carving out around $109/barrel and trading a bit more narrow. I hope that the crude oil trade is finding a range with the the new world environment. Although prices are higher, having stability in the trade allows futures pricing to be more predictable, which in turn allows spot pricing of the day be more accurate. I am still optimistic that fuel prices will be much lower by Memorial Day.

In local news, gas and diesel spot pricing traded at rates I’ve never experienced. I can tell you that your local gas station is not gouging the public. One major cost of selling fuel that has not been discussed is credit card fees. Credit card companies receive a percentage of a total sale and make up over 80% of all fuel purchased at gas stations. As fuel cost DOUBLED in price, so did credit card fees. There were some days the past two weeks that the credit card companies were making more than a store owner on the sale of a gallon of gasoline! And…since Visa/MC abandoned business in Russia, Visa/MC announced an INCREASE to American credit card fees starting next month! Many believe that higher retail fuel prices equal higher profit margins for gas station owners. The opposite usual occurs. Gas station owners earn much less, and sometimes lose money in volatile bull market runs on refined product costs. Please do not take your anger and frustration out on gas station owners or cashiers. They are truly doing their best and so many variables are out of their control right now.

Propane prices thankfully have remained quite stable the past week. Propane hasn’t experienced much of the extreme volatility as crude oil, gasoline, and diesel did last week. For now, we are recommending all propane customers to use up the remainder of their available contract gallons and wait until summer for hopefully better prices. Also, if you are a will-call customer, don’t forget to keep an eye on your tank level! March and April can play tricks with warmer days and cooler nights! Running out of propane likes to sneak up on will-call customers during March and April. 🙂

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

Best regards,

Jon Crawford

What A Mess…

Posted on March 4, 2022March 4, 2022 by Jon Crawford

Good morning,

Happy Friday. There is SO much going on in the world right now, I’m just going to dive right in. So be patient. My post today might jump around a lot. Prices of crude oil are rocketing higher on fears of oil disruptions from Russia. The world is betting on embargos of Russian oil and no ability to plug the deficit. I would like to paint you a different picture. Russia exports about 5M barrels of oil/day. Any embargos or sanctions will push all Russian oil sales to China and India. If China and India purchase more from Russia, the oil that was going to those countries can go somewhere else. Basically, there will NOT be a 5M barrel/day deficit on Russian oil sanctions. One MAJOR event that is not being discussed is the execution of the new Iran nuclear deal. China is pushing hard for the deal to get done. Why? Because if the deal gets done, 1-2M barrels/day of oil will flow into the markets by the end of April, alleviating some of the price shock and taking pressure off China to act on Russia. Also, China does NOT want high oil prices because their economy is leveraged on the world buying goods from them. And continued inflation of crude oil trickles through every section of a goods-purchasing based economies. The Iran nuclear deal is looking to be signed by the end of next week. If that happens, their could be a $10/barrel drop in crude.

OPEC also met this week and decided NOT to increase production quotas beyond 400k barrels/day. Many were thinking Saudi Arabia would increase 1M barrels/day themselves just to show the world that they are needed and once again the heroes. But they did not do that. Saudi Arabia can increase production 1-2M barrels/day easily within two months. So why did they not do that? The Iran deal is on the horizon. Iran and Saudi Arabia do not like each other and continue to fight a proxy war in Yemen. If Saudi Arabia announced a 1M barrel/day increase this week and shook the market, and then the Iran deal came on next week, the market could overreact and tumble. Saudi Arabia wants to bring the prices down slowly and steady. But Saudi Arabia does care about Iran going after their customers. So Saudi Arabia is waiting. If Iran signs the deal, the markets will relax. But then in April, Saudi Arabia will see how much they can increase to counter Iran without throwing the market into a freefall.

I’m sure many of you have read about calls from countries, including the US, to stop buying Russian crude. I know that sounds very straight forward and makes sense. Why should we be giving money to the enemy invading a peaceful nation? But I believe we should not embargo Russian crude oil. If we stop buying Russian crude, Russia will sell the crude to China or India. The embargo in the US will do nothing to hurt Russia economically. If anything, it would HELP Russia make more money and profit on war. If we enact an embargo, the markets will panic further and crude prices will rise. Russia will then be able to sell the same amount of oil or even less at HIGHER prices to customers. We should be looking at all options to LOWER the price of crude oil as quickly as possible, NOT inflate crude oil prices.

This week the world announced a strategic release of 60M barrels of crude oil from reserves. Some are saying we should be keeping our reserves high because of tight production. I disagree. I do not see long-term production problems with crude oil. I think that the world should be looking at more aggressive long-term strategic releases and not quick floods. I think a strategy of saying they are prepared to release 15M barrels/month for the next six months would have a much better effect than the approach they are taking. Plus countries can strike deals to replenish inventories over the coming years. And, at this strategy, we would not go below 50% of our world reserve capacity.

As far as the US production and reserves go, I got to thinking about the Keystone pipeline. As you might know, I have been against the Keystone pipeline because the pipeline moves Canadian Tar Sand crude down to the Gulf of Mexico where refineries are unable to use the crude. The crude will be exported out into the world market. Basically, the US is a giant lease-holder for the Canadian oil companies. Canada already has direct pipeline access to Midwest refineries that are tooled for Canadian crude. The main reason I have been against the pipeline is the lack of financial incentives for the US. However, I would not be opposed to exploring using the Keystone pipeline as a mechanism for replenishing our Strategic Reserves. We could work an index deal to purchase crude from Canada and replenish reserves directly when needed. Then we can release and sell that oil on the open export market. We do not need to store crude oil that can only be refined in the US alone. We have more than enough oil and harvesting capacity to take care of ourselves in a major jam. Then use the strategic reserves as an energy tool like Saudi Arabia does. We would gain further energy independence and marketability around the world, all while partnering with our neighbor to the north.

That was a lot… Next week will be a big deal. Right now our fingers need to be crossed that the Iran nuclear deal gets signed next week and that Ukraine/Russia agree to a ceasefire. Until then, we will be sheddin’ cash into our fuel tanks, heating bills, and shipping costs.

In local news, gasoline retail prices jumped to over $3.50/gallon and I expect this to go up further. Diesel retail price jumped to over $4.00/gallon and will start to approach $4.50/gallon really soon. If we thought trucking and supply chains were issues before, just wait and see what happens if these high fuel costs hold longer than two months!

Propane price has moved higher along with crude. Although the price has not traded at the same multiple of heating oil. Right now, propane is still about 10% cheaper than heating oil at retail price based on BTU’s. The only silver lining on propane is that production looks to be strong at these current crude oil prices. So hopefully propane producers can rebuild inventories at a good clip this summer and bring lower prices for later in the year.

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

Best regards,

Jon Crawford