Good morning!

Happy Friday!  Another wild week in the energy markets.  Crude prices continue to rebound higher as traders shake off demand headwinds from China and their lockdowns.  The hot potato is still the Ukraine/Russian war.  Germany is warming up to cutting off Russian crude imports.  As the oil market continues to try and balance with a disciplined OPEC+, supply disruptions from Libya and others, and the US not able to ramp up as quickly as our government wants, higher prices for crude will continue to be supported in the near term.  Russia is also demanding payment in rubles and shutting of natural gas supplies for those who don’t pay.  Some are worried the payment in rubles could spread over to crude as well.  The instability of Russia’s action with payments is increasing volatility on all commodities.  The good news is that OPEC+ is staying true to production increases the best they are able and the US is plowing ahead with adding more oil rigs.  Germany is also opening back up the North Sea for crude harvesting.  In addition, refining capacity across the globe is also expanding.  So although we are in for a nasty ride of volatility and high crude prices for 2022, I see much lower prices going into 2023 and beyond.  Even though supply is quite bullish now, we are facing some bearish sentiments on the horizon.  The value of the US Dollar is shooting higher which usually lowers energy prices because crude settled in dollars.  And some economic headwinds are forming in the US with inflation on all goods and services, potential housing crisis looming, and a labor supply problem that is not getting better.  If a recession hits the US at some point this year, crude prices will most certainly drop.

In local news, the refinery issue in Chicago came from Bp Whiting, the largest refinery east of the Rockies.  The production shutdown caused a massive spike in Chicago sport price.  Unfortunately, the Group had been struggling with supply, so a shifting of barrels was not as easy as usual.  Then, a short squeeze developed on diesel barrels as an arbitrage for the May to June contract shift developed.  The east coast diesel cost is almost $1/gallon higher than Chicago market!  Pricing diesel spot price right now is like throwing darts at a chalkboard.  And as I have been saying, if you care about the state of the economy, watch diesel prices, not gasoline.  There is still enough money in the system yet for consumers to afford these gas prices for a while.  But if diesel prices continue to climb at these current rates, prices of everything will continue to go up.  Diesel literally fuels our economy.  So until the May contract closes out and June opens next week, we are in some choppy trading waters.  I would not be surprised to see diesel retail prices in our market eclipse $5/gallon next week and gasoline retail eclipse $4/gallon.  If the arbitrage calms down on the spot market, we could see prices ease and not break through my predicted ceiling.  Once again, I hope I am wrong!  🙂

Propane prices jumped last week as the winter weather continues to drag on.  Although national supplies are starting to rebuild, the issues with the EU needing so much LNG is putting pressure on potentially increasing propane exports as well.  I get worried that the US will over-promise and deplete our much needed reserves at home.  But we still have plenty of time.  For now, I don’t expect propane to move much lower in price.  Next season’s contract pricing will probably come out in June this year.  So stay tuned for more info!  If you are a will-call customer, remember to check your tank!  This cold weather is surprising a lot of customers and causing runouts!  🙂

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

Best regards,

Jon Crawford

Good morning!

Happy Friday!  WTI crude prices continue to remain above $100/barrel as the war in Ukraine rages on.  Crude prices soared on OPEC+’s commitment to their production strategy and the EU ending Russian imports by year end.  Libya also lost control of a major production facility to political insurgents.  The loss of Libya production coupled with draws in US inventories being exported pushed WTI closer towards $110/barrel.  But then Germany threw some cold water on the party saying that they are reopening a ton of oil wells in the Black Sea that will replace Russian imports by years end.  Then the FED said that 50 basis point rate hikes are on the table for the out of control inflation plaguing our country’s economy.  And China’s economic “reopening” is not going well at all.  There are now four times as many ships sitting outside China waiting to unload and load as there were in 2020 when the the world shut down.  If we thought supply chains were a mess before, hold on to your hats!  I believe our supply chain issues could see the hardest times yet this summer!  The end of week news pushed WTI crude back down towards $100/barrel.  Although the prices for crude dropped nicely, the prices for refined products in certain spot markets did not follow accordingly.

In Chicago, a refinery maintenance issue coupled with upcoming summer demand has caused cash basis spot pricing on gasoline and diesel to skyrocket.  The cost of gasoline is now almost 30 cents per gallon higher than it was a week ago, and diesel cost is now over 40 cents higher.  Our market in Wisconsin, is mostly based on Chicago spot pricing along with the Group to the west.  The Group was already struggling to keep supply steady, while Chicago was offering steep discounts to help move supplies.  Now, the tables have flipped.  Chicago spot market is now HIGHER in cost compared the Group.  The flip in economics means that the retail price of gasoline and diesel is going to be much higher next week.  I expect to see gasoline retail price hit or exceed $4/gallon and diesel retail prices to hit or exceed $5/gallon.  Unfortunately, we have a LONG way to go before gasoline and diesel prices settle down.  I am now predicting that gasoline retail will be between $3-4/gallon and diesel retail $4-5/gallon for the remainder of the year.  It’s the one prediction that I hope I am wrong!  🙂

Propane prices are holding very firm on skyrocketing natural gas costs.  As natural gas prices rise, companies look to propane as an alternative fuel for production.  And since Canadian inventories are very low, as well as America’s inventory, the markets are going to price propane accordingly to try and keep as much on hand to help avoid a supply crisis next winter.  The late season cold weather is keeping propane inventories from building into next heating season.  The longer lasting cold is also pushing off the planting season for farmers which raises the probability of a later harvest.  And usually a later harvest means more crop drying demand because farmers lose a month of natural drying weather during optimum crop growth maturity.  For now, I do not expect to see propane prices move much lower.

As always, if you have any questions, comments, or concerns, please feel free to contact us!

Best regards,

Jon Crawford

Good morning!

I hope this message finds you all well on this snowy and cold morning in Wisconsin.  WTI crude prices are closing below $100/barrel for the week after hitting highs just weeks ago.  The big news this week was an announcement by the IEA to release an additional 160M barrels of oil from the world strategic reserves.  At first, the market sold off on the news but recovered within a day.  I believe the reason is because all the actions being taken to curtail rising energy costs are too much, too late.  I know that sounds a bit counterintuitive, but the market is starting to understand the bigger picture that OPEC+ is behaving within their production quotas.  And OPEC+ seems to remember what happened in 2014.  They are NOT going to be stuck holding the bag.  The more the world pushes the reserve releases, the firmer they are holding to their quotas.  And the world will run out of reserves before OPEC+ runs out of oil.  So we are in this game of “catch-up” and “reaction” that is not working as expected.  Even rising interest rates and discussion of possible recession are not affecting crude prices as they have in the past.  I really believe that until there is a steady, predictable increase to world crude production, the world will be stuck with higher oil prices.  If we do go into a full-blown recession and interest rates jump 3%, we could then start to see some downward pressure.  However, if OPEC+ responds with production cuts to these events, possibly prices could be buoyed at higher rates.  Even China continuing to shutdown the largest city in the world didn’t lower crude prices that much!  Now, although crude prices are much lower, some have stated that retail prices have not fallen as much.  The reason is that cost for gasoline and diesel is at a positive arbitrage to crude prices.  We continue to export refined products dealing with worldwide supply issues surrounding the war and bans on Russian products.  The United States is at 92% refining utilization which is very healthy, but our exports are offsetting the builds in diesel reserves that we desperately need.  The US is at the lowest levels of diesel fuel inventory in many, many years.  And we are now in an economy that is more dependent on diesel due to our spending patterns.  As inflation continues to skyrocket, consumers are already stating that they are going to cut back on “going out” which means they will just buy more stuff at home.  The behavior puts more pressure on mid-stream logistics which is mostly fueled by diesel.  Whereas the “going out” consumer behaviors are fueled more with gasoline.  Regardless, I believe the West is reacting too much, too late to make a big difference in the near term.

Gasoline and diesel retail prices have eased a little bit at the pump.  Gasoline retail prices are pushing closer to $3.49/gallon and diesel is pushing down towards $4.49/gallon.  The spread between gasoline and diesel is almost $1.00/gallon at the pump!  The reason is due to the very low national inventories of diesel.  As I have been writing, consumers need to watch the price of diesel.  If diesel stays high as it is, inflation will remain red-hot because diesel prices are connected to everything we do.  In my opinion, for what it matters, we need diesel prices to drop $1/gallon in order to have a shot at a soft landing coming down from high inflation with rising interest rates.

Propane prices are also slowly easing with the recent drop in crude prices.  Although propane cost is not dropping as much as expected due to very low national inventories and a winter that never seems to end.  The good news is that I see a better chance of having propane contracts for next season at lower prices than I anticipated a month ago.  We will be sending out information on our contracts for next season probably near the end of May or the first part of June.   Please stay tuned for more info.  In the meantime, if you contracted with us for the current heating season, please make sure to call us if you have remaining contract gallons.  Your current contracted gallons expire at the end of April which is fast approaching!

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

Best regards,

Jon Crawford