Political Gimmicks In The World Of Gasoline Prices

Posted on June 24, 2022June 24, 2022 by Jon Crawford

Good morning!

Happy Friday! I was off last week on vacation so I will try and get you caught up from the past two weeks. Over the past two weeks crude oil prices have fallen but the price of gasoline and diesel continue to remain high due to VERY tight refining capacity and record exports. China continues to look at possible lockdowns for controlling Covid. Interest rates from the FED are going up another 75 basis points. Economic data is not looking good in the US. And China/India recorded record imports of Russian crude oil over the past month. As the FED tries to tame inflation with rate hikes, the economic situation in America is starting to look different. Home prices have reached their highest average price ever and mortgage applications are dropping. With the increase in interest rates, people are getting priced out of the market. But more scary, some people who are building are getting priced out of finishing their homes. Builders are starting to lower prices on pre-built homes and refinancing is drying up. I’m not sure we will see 2008 housing crisis levels, but there is definitely something brewing in the housing market. Couple the housing market data with massive amounts of layoffs at large companies that were scaling up during the stock market boom, and the American economy is starting to change. Companies remember 2008 so they are starting to prepare “as if” a major recession will happen. People are now wanting to go back to work and surprisingly the job market is getting tighter in spots. In other words, the balancing act of rewinding from the past two years is starting to happen. Where we will land, no one knows. We’ve never been in a situation where trillions of dollars was pumped into the economy for two years. The war in Ukraine is not showing any signs of receding and the FED is very hawkish on taming inflation with the threat of recession on the table. President Biden is focused on brining down gasoline prices, which I have stated for months means nothing to stop inflation. He has explored giving a “federal gas tax” holiday which leaves holes in the transportation budget to fill. He’s demanded that gas station owners lower their prices with no understanding of the cost structure. And he has considered sending “gas cards” to all Americans which is nothing more than “buying votes” and a waste of tax payer money doing that does nothing to solve the problem in my opinion. Without lowering the price of diesel, nothing changes. If we can bring down diesel prices, inflation comes down, which increases the strength of the dollar, which in turn will bring down the price of gasoline. All focus should be on the SUPPLY of diesel, not the price of gasoline. Unfortunately, we are exporting diesel to markets in Europe and just can’t produce anymore at home. The President wants oil companies to do more, but he has also told oil companies that their days are numbered. Oil companies have been reinvesting record profits into solar, wind, and hydrogen projects knowing that remaining in fossil fuels will be difficult long term. The market is showing opportunities for transition to green energy and the large oil companies will invest. I am not a “fan” per se of “Big Oil”, but their five year averages on profits does not look crazy and they are diversifying their investments away from crude oil. But we can’t run before we walk. We have a long ways to go and the situation won’t change overnight. But without bringing down the price of diesel in this country, our high inflation, including high gasoline prices, will be here to stay.

In local news, Gov Evers passed an executive order stating that gas stations will be held accountable for gouging the public with high retail prices. Based on his order, a gas station can not sell gasoline for more than 15% profit margin over their highest price in the 60 days prior to the order. However, the gas station can adjust based on replacement cost. The order is ridiculous in massive magnitude. At no point in the past two years has any gas station in the state sold gasoline for more than 15% profit margin. In addition, our cost changes every day so enforcement is simple to see. Gas stations do not make that much money selling gas. But their credit card costs have skyrocketed. Gov Evers also stated that the order applies to upstream supply. We have spoken to the companies that supply the state with gasoline and no one is willing to open their books to the government. Therefore, if at any point, selling a gallon of gasoline to a distributor in Wisconsin would be a violation, they will just move the sale over to the Group Market and bypass Wisconsin. The main suppliers of Wisconsin have made it clear, that they can meet their contract obligations, but any spare capacity will be moved elsewhere if violations were to be possible. Therefore, the executive order could cause a gasoline shortage in Wisconsin. The governor never spoke to our State Association which I am apart of, or even DATCP (the enforcement agency) before making the order. The order is a political move, once again, trying to place blame on someone for high costs. Gas station owners have been through hell and back the past two years, and are now dealing with a critical driver shortage and running out of gas during the high demand season of summer. Wisconsin gas station owners did not need the extra headache at this time.

Propane prices continue to be “steady as she goes.” The propane market is saying loud and clear that we are skipping along the bottom for prices no matter how low crude goes right now. In order for propane prices to really drop, crude oil will need to go down almost $20/barrel and crop drying demand will need to be low in demand. If you have not ordered a summer fill, I highly recommend topping off your tank at this time. Next season’s contracts will be released right after 4th of July. Look for mailings to start after the 4th, or call us after the 4th of July to lock in your pricing.

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

Best regards,

Jon Crawford

Another Record Price

Posted on June 10, 2022June 10, 2022 by Jon Crawford

Good morning everyone!

Happy Friday! Unfortunately I do not have much more to report after the long update last week. Gasoline retail prices have officially blown out higher and surpassed the national average of $5/gallon. Diesel prices are once again flying higher as well due to the tightest market I’ve ever seen. This week, our refinery utilization surpassed 95%, leaving us less than 5% spare capacity in the US. I’ve only witnessed this tight of a market a few times and they were short lived. Crude prices also caught fire and WTI blew through $120/barrel this week. World demand for crude is continuing to hold steady and we just cant’ shift supply needs around fast enough. It’s like Wack-A-Mole! Until demand drops significantly, we are going to be stuck, and unfortunately I see higher prices on the horizon. Major banks thought consumers had about 6-9 months of spending runway left, but now they are revising the call down to 3-6 months. And if crude prices blow out to $150/barrel, the consumers in America will be defeated by end of summer.

Gasoline retail prices are inching ever so closer to $5/gallon in Central Wisconsin. And my call on diesel was way off. I really thought we had diesel under control and gasoline was going to be the rocker ship. But diesel retail prices are inching close to $5.50/gallon in Central Wisconsin. If there is ANY refinery issue in the Chicago Spot market, we could see $6/gallon retail diesel and over $5.50/gallon gasoline. Wowza…

Propane continues to be a dim light of hope. Propane is now 60% cheaper than diesel when comparing BTU’s or available energy. Propane has incredible value compared to natural gas and diesel right now. I highly recommend cost-averaging during these volatile times and filling your propane tank now. We hope to have our contract pricing for next season out in the next few weeks. The numbers are starting to settle out and I’m cautiously optimistic for propane this year. As long as crude production stays at record levels, propane should be able to remain less volatile than it’s neighboring products. And for now, I see NO headwinds for slowing down on crude production. If crude demand slows in the US, there are plenty of other countries that will take our crude and refined products! The more crude production, the more propane!

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

Best regards,

Jon Crawford

I Hope You Are Sitting Down

Posted on June 3, 2022June 3, 2022 by Jon Crawford

Good morning!

I would like to say “Happy Friday”, but there is not a lot of happy news in this week’s update! I’ve been writing for weeks that gasoline prices were primed to breakout higher in due to high demand and lower supply, but now diesel is hitching a ride to the moon along with gasoline! The EU announced this week that they will be banning basically 90% of all petroleum imports from Russia. The announcement sent shockwaves through the already very tight crude market. WTI crude prices soared past $115/barrel, pushing gasoline and diesel prices over 30 cents/gallon higher. OPEC is starting to see some cracks in their strategy. The defacto leader of OPEC, Saudi Arabia, floated ideas of kicking out Russia from OPEC+ due to supply chain disruptions and unpredictability with quota production. In addition to kicking out Russia, Saudi Arabia sent a calming message to the West that they will not let prices run away. Many banks have been calling for $135-150/barrel WTI crude. Saudi Arabia said those prices are unsustainable and they do not want to cause an economic collapse. OPEC+ agreed to increase production quotas from 400k barrels/month to over 600k barrels/month for the next two months. However, the world markets are skeptical that OPEC+ can deliver. The US is continuing to pour out crude oil exports, along with diesel fuel to Europe. There were major draws on our national petroleum inventories last week. Quite frankly, I’m getting a bit concerned that we are not leaving ourselves enough wiggle room on diesel supply in America. We only have 5% spare refining capacity left in the entire US! The East Coast is in major trouble, and the Midwest / Gulf Coast are extremely tight. The incentive for refineries to run is very strong. But with all the exports going to Europe, we are just not able to get ahead on national inventories. NOAA Weather is calling for a higher than normal hurricane season. This could actually be a blessing in disguise for the Midwest. Right now, Chicago refineries are shipping product to Nashville for East Coast deliveries, and down to the Gulf for exports. In the past, the Gulf was the main refining source for the East of Rockies markets. But over the last ten years, the Midwest has taken the refining crown from the Gulf Coast and is supplying more products to the south. Although hurricanes will shudder production, they will also shudder exports. When the Gulf shuts down for hurricanes, demand also dies. Therefore, hurricanes could actually give the Midwest a breather to catch up on diesel supplies going into the harvest. There is no appetite for refiners to store barrels right now, so a lack of exports might give an opportunity for storage. Although prices would increase, at least we would have spare capacity for the fall harvest. As always, I do not see us getting out of the woods until the war in Russia is over. I believe we are in for a very difficult summer and fall. But the good news, is that I still see the energy markets starting to balance out in the first half of 2023. The only scenario that allows the cooling of crude prices to come quicker is a world economic collapse. Major banks are stating that the average consumer in the US has about 6 months of spending power left in the tank. But if the prices of commodities stay hot, our consumer economy could start to contract faster than expected. Any major economic contraction will start to pull down commodity prices. Regardless, not much will change until after summer.

In local news, gasoline retail prices are moving closer and closer to $5/gallon. In the RFG markets around Milwaukee, gasoline retail has already broken $5/gallon. And I thought diesel was finally balanced out and going to move lower than gasoline retail, but just like that I was wrong. Diesel retail prices have climbed back through $5/gallon and are now moving closer to $5.49/gallon! The volatility of the energy markets is absolutely stunning and head-spinning right now.

The one bright spot in all this chaos is propane. Propane prices continue to stay steady through the chaos. Propane is now much cheaper to use for heat than natural gas and fuel oil. Unlike natural gas and other refined products, we already know the maximum export capacity of propane in the US. Therefore, we can do simple predictable math on the supply of propane in our country. As crude harvesting and refining capacity continue to run red-hot, the byproduct of each process is the production of propane. Propane inventories are now higher than they were at this point last year. Now, we don’t want to be complacent. We had very little corn drying demand last year. But with the late planting season this year, corn drying demand could be very high. We are still too early to predict, so we must be cautious. For now, propane prices are at their lowest in six months. If you have not ordered a summer fill, we highly recommend that you do so. Contracts for next winter season will be released probably near the end of June.

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

Best regards,

Jon Crawford