Good evening!
I am writing my weekly report before the final day of trading this week. Thus far, WTI crude oil prices have traded in a very narrow range around $75/barrel. But the amount of strange events and data releases this week are making future predictions even more difficult. On Monday, you had Biden in Ukraine showing solidarity and promising to send more weapons. Then on Thursday, you had the ambassador from China meeting with Putin and promising solidarity, but asking for a ceasefire and offering a 12-point peace plan. China is trying to pivot as a possible deal maker, but nothing in the plan looks like a starting point for Ukraine. And then Russia shelled Ukraine today in honor of the one year conflict. We are now entering a phase where the US and China will be even more proxied into the conflict. And in retaliation for China showing solidarity with Russia, the US doubled down on its’ presence in Taiwan. All major powers are continuing to try and look like heroes while poking each other in the eye. Russian crude and refined products were found to be traded from ship-to-ship in the waters around Greece. About 300k barrels/day of product is being transferred and Greece says there is nothing they can do about it. Then back at home, the economic data is so confusing and possibly shifting the economy back into wage inflation. Weekly jobless claims fell, while continuing jobless claims fell. But GDP from Q4 was revised down, and inflation from last month was revised higher. The FED met this week and were unanimous in wanting to raise rates at least .25% next month. However, many more FED members are pushing towards .50%. Even though tech and other large companies are laying off by the thousands, the service industry is paying through the roof for employees who want to maintain their lifestyle. Although commodities and other items might drop in price, the increase in wages is going to drive inflation higher. So the FED might get stuck in a situation where no matter how high they raise rates, employers will just pay more to the employees and then raise the retail prices. So for now, things look healthy and the economy looks pretty good on the outside. But under the hood, things are not looking great. The long-term trend that is brewing could be very dangerous. The strength of the dollar in comparison to other currencies seems to be peaking. Other countries are tightening up monetary policy to catch up. This does not mean that the dollar will drop in value and cause commodities to go up in price. Other countries will just be able to afford more as they prop up their currencies through rate hikes and tightening. Some economists now believe the FED might have to go to at least 6% to slow things down. The question is, how will we slow the wage increases without breaking the economy? The second half of the year is going to be very interesting. The possibility of a soft landing recession is still there, but until wages start to come down along with retail prices, we are stuck in a very scary spot. Credit card debt is still the highest in history. Home purchases are grinding to a halt. And the cost of service based entertainment is continuing to skyrocket, including travel. Eventually, with enough rate increases, the rooster will come home to roost. I believe summer gasoline demand will be less than last year. And I’m not so certain that the economy is going to land softly by the end of the year. If we can help with a ceasefire in Ukraine and take some of that risk of the table, we can hopefully better balance crude prices. But there is so much crude oil coming to market this year. The US is continuing to build national inventories weekly. I guess at the end of the day, as I look from a 20k foot view, I don’t see the US dealing with $100 crude anytime soon. But I also don’t see crude prices falling below $60/barrel. As the world banks tighten and geopolitical issues play out, I think crude will dip at some point this year. But then again, out of nowhere, Iran has access to a nuclear weapon as well, who knows! Oh, and we are about to enter a presidential election cycle in the US. Instead of everything slowing down as it should be right now with tightening monetary policy around the world, things seem to be heating up. And eventually, a bubble will burst. The big question is which bubble will burst and where?
In local retail news, gasoline prices dipped but recovered this week. So I do not expect to see much change in retail gasoline prices. Diesel prices continued a downward trend for the week and I do expect to see cheaper diesel retail prices into next week; especially now that we are through the coldest part of winter and expensive winter blending is behind us.
Propane prices moved around a little bit this week, but not much. There were some decent draws on national inventories that past two weeks, but the US still has 30% more propane in inventory this year compared to last year. Last year April was cold so I’m expecting to see the build in propane inventories continue through spring into early summer. And if inventories continue to strongly build, summer fill prices might be very attractive, as well as next season’s contract pricing. But first, we need to finish up winter. 🙂
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford