I hope this email finds everyone well. I wanted to thank all of our customers for another successful year in 2022. Although 2022 was very difficult, volatile, and confusing at times, we were able to navigate and be prepared for 2023. The last two weeks of the year are very light with trading on the exchanges, so commodity pricing is a bit wonky. WTI is ending the year under $80/barrel.
I have decided to offer some predictions for 2023. Now remember, commodity price predictions are probably the most difficult predictions to make. And those that win are usually lucky! My predictions are based on my personal research and looking at the 20,000 foot view of the world.
I believe there will be opportunities for lower oil prices in Q1 and possibly into Q2 as China manages their first nationwide Covid outbreak. I also believe there will be a pullback in the economies of the US and Europe. The combination of the two aforementioned scenarios could cause a bit of demand erosion that could pull down crude prices. I also believe the FED will keep their foot on the gas or at least coast at current rates through 2023. The FED actions will also support lower crude prices. I am calling a bottom in WTI crude oil prices around $60-65/barrel.
On the flipside, if China’s outbreak doesn’t last very long, crude oil prices will find some legs. If the US and Europe find a way to keep the economy on a soft-landing trajectory, crude prices will also gain some momentum. Russia is continuing to threaten further oil production cuts, but Saudi Arabia seems to be more cozy with the United States. Therefore I don’t believe Saudi Arabia would let WTI crude prices soar above $100/barrel. All of that being said, I believe that WTI crude oil prices have a ceiling price of around $95-100/barrel.
When comparing my future calls for WTI crude prices to the current price, WTI crude price is about smack-dab in the middle of my call range. So for those customers that like to hedge their bets for the coming year, I do believe that purchasing a small amount of futures during the current pricing structure is not a bad place to start. The strategy for 2023 is going to be cost-averaging and taking advantage of the price dips. The coming year will be very volatile just like 2022, so we will need to be nimble and ready to pounce on opportunities when they arise. Any opportunities for purchasing on a dip will be short lived throughout the coming year. I am not advising any hedging into 2024 due to extreme volatility and the war in Ukraine. If there is a settlement between Russia and Ukraine, crude oil prices will probably drop $10-15/barrel on the far futures market. Therefore, no one wants to be holding a bag of 2024 futures if a major sell-off occurs.
I also believe that drivers will experience retail prices at the pump continuing to move in volatile ranges. The United States is still very tight on production with a lack of refining capacity. If a recession hits, refineries will be able to store more product and prices at the pump will fall. But if the economy stays stronger than anticipated with a soft landing, refineries will continue to have no room for error. My advice is to accept in advance that the prices at the pump will move around at a very rapid pace. However, I do not believe diesel retail prices will climb above $5/gallon unless we lose another major refinery due to a massive accident for an extended period of time. Gasoline retail prices will probably float in the $2.50-$3.50/gal range.
Propane production continues to be robust and exports remain at full capacity. We could be experiencing the once-in-ten-year event where the rack price of propane stays lower than the contracted prices for 2022-2023 heating season. Propane inventories are starting to deplete a bit, but not at a pace fast enough to cause a massive price spike. There is still an opportunity for propane rack prices to break out higher in January and February. But once again, I don’t see any reason to panic that the country is going to be strained on propane inventories. The good news is that I believe propane retail prices will be around the $1.75-$2.25/gal price point for the 2023-2024 heating season. In comparison to other heating commodities and their future price predictions, the predicted retail cost cost of propane will be a great value for those customers using propane to heat their homes.
As always, if you have any questions, comments, or concerns, please feel free to give us a call. I wish all of you a safe and enjoyable New Year’s celebration, and I hope 2023 is full of laughter and prosperity for everyone!