Just Like My Favorite Song… “No One Knows”

Posted on April 28, 2023April 28, 2023 by Jon Crawford

Happy Friday!

I hope this email finds everyone well. The news headlines of the week really tell the story of the WTI crude trade. And just like my favorite song from Queens of the Stone Age… “No One Knows”. Monday: “Oil rises, but set for weekly loss as economic uncertainty weighs.” Tuesday: “Oil prices settle higher on optimism about fuel demand in China.” Wednesday: “Oil dips 2% on economic woes and strong dollar”. Thursday: “Oil drops 4% as recession fears outweigh US crude oil inventory draw.” Friday: “Oil steadies after Russia says global oil markets in balance.” So… no one knows. 🙂 Is a recession going to hit hard as the FED continues to signal more rate hikes because inflation data continues to be messy: home prices falling, cost of some goods falling, slowing economy and record credit card debt, but consumer spending is staying high as well as high wages coupled with unemployment staying low. In addition, we are trusting information from Russia and OPEC as the driver for prices higher. Although WTI crude oil looks to close lower this week, unlike last week, refined products moved lower. The amount of refining capacity worldwide continues to grow and traders are starting to get a little spooked that oil markets will be tight but an abundance of refined products will develop due to global recession. The fears remain even as China continues to report growth. However, you must take the info from China with a grain of salt. No one is ever allowed to confirm nor deny the economic info coming from China. So in conclusion, just like I started this paragraph with my synopsis of the WTI crude oil trade this week… no one knows. 🙂

Gasoline prices in the Chicago market continue to hold steady as refiners continue to produce more diesel than gasoline based on the anticipation of weak demand this summer. But fears of global recession have pushed diesel prices below the cost floor that I thought was firmly set in place. Diesel prices fell to a price lower at $75/barrel WTI than when WTI price touched $67/barrel during the “Black Swan” potential banking crisis! I have never seen such bizarre trading activity since 2008. Nothing seems to make sense in both the crude oil trade as well as the Chicago spot market trade. What I can say, is that our neighbors in the Group are experiencing some of the most volatile trading in many years. I believe Chicago might see some spot market price blowout higher on diesel because farmers are going to hit the fields hard for planting due to very sporadic weather. And I also believe that Chicago could be in for a run higher on diesel prices this fall with harvest, especially if global prices for diesel are higher than spot prices in America. For now, retail prices at the pump for gasoline should stay fairly steady, but retail diesel prices might ease a bit.

Propane prices dropped a little bit with the drop in crude price, but not nearly as much as usual. I believe that we will see lower prices in May as we transition out of winter economics and supplier/retailers push to build allocations for next winter. The United States is going to finish this winter with 50% more propane in inventory compared to last year! I believe this might be a record. The reason is due to a very mild winter as well as strong production. I am very confident that 2023-2024 winter heating contracts will be lower than this past year. But I am fairly bullish on 2024-2025 winter and beyond. The reason is that I believe American producers of crude oil and OPEC will continue to try and keep prices high through lower production, especially if recession hits. In addition, American propane suppliers will export at record rates with the current glut of propane, as well as not ordering as much rail propane from Canada moving forward. For now, the consumer should be able to enjoy lower propane prices throughout the summer and lower heating costs for the next winter compared to last. As I’ve been writing, not many commodities are cheaper for next year compared to last year! Therefore, next winter propane customers should be very happy compared to those with electric or natural gas heat. 🙂

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

WTI Crude Oil Closes Back Below $80/Barrell

Posted on April 20, 2023April 20, 2023 by Jon Crawford

Good afternoon!

I am writing my update a bit earlier due to conflicts tomorrow. This week was very interesting. “Risk off” took over the news wires as recessionary signs flashed all over the markets. More attrition at large tech firms were announced. The dollar gained back strength. Bitcoin fell back below the $30k level. Credit card debt continued to sky rocket to another record level. The “repo man” took the most cars back last month since 2008. Housing market purchasing slowed. Fears of summer demand for gasoline are starting to take hold. And most market makers are now pricing in a FED interest rate hike in May. Now, that’s just American economic data! On the world stage, refiners are expanding at incredible rates causing crack spreads to crumble in America and across the globe. China and India continue to purchase Russian crude above the “cap” set by many countries. So oil is flowing across the globe and refiners are moving forward at a quick clip, even though world recession could be on the horizon. Even OPEC+’s large surprise cut is not really affecting the pricing that much because refiners around the world continuing to expand and run at high rates. It’s amazing how much can change in one week. Last week was “no recession in sight, and WTI oil is going to blow out towards $90/barrel.” Now this week is “recession signals are everywhere and the FED is going to raise rates again. Run for the hills!” Even though I believe WTI crude oil will close below $80/barrel this week, I do not believe OPEC+ will let WTI crude oil price fall back below $70/barrel. We would need another “black swan” event like the banking crises to experience WTI prices collapse that hard. But for now, I would say the “risk off” is winning and cheaper prices are coming down the pipeline….for now. 🙂

In local markets, Chicago spot market never blew out in price to match The Group in spot diesel pricing. In fact, as fast as The Group spot price rallied, the price collapsed this week. Overall, cost of gasoline and diesel are going to end the week lower and I expect to see some falling retail prices next week at the pump. However, with this high volatility, the drops can take some time as blended inventories work there way into the market.

Propane is sending a message loud and clear. A price floor seems to be forming. In other words, with how much WTI crude oil price fell this week, propane prices did not fall according to historicals. I’m starting to see a floor for possibly summer and next year take shape. Basically what the situation means is that propane producers have a certain price they need to make in order to keep operations running. The cost of labor, materials, etc. continue to rise and I believe with the arbitrage to export, producers/suppliers are kind of saying “we wont make/sell for less than this certain price because it doesn’t make economic sense.” Now, the good news is that I do believe that spot price in the summer will drop a little bit more, and I do believe that next heating season’s contracts will be lower than last year. More to come as the volatility in the WTI crude trade continues.

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

Best regards,

Jon Crawford – Pres.

Not Too Much To Report

Posted on April 14, 2023April 14, 2023 by Jon Crawford

Good morning!

Happy Friday! I hope this message finds you all well. Unfortunately, there is not much to report this week with crude prices. The WTI trade moved between $80-82/barrel this entire week. There was not enough news to really move the needle. OPEC released their March data showing that production only dropped a small amount compared to quotas and the drop was from Iraq who had export issues in March. Even though the cuts in production from OPEC seem to be in place and holding, oil markets are not quite letting the bulls into the arena. Even though OPEC also reported record imports from China, the forecast for summer demand was very bleak at almost a 3% drop in world demand compared to last year. Therefore the proposed cuts last month would be more in line with the marketplace if the demand erosion does occur. So for now, traders are in a “wait and see” mode. Placing a bet is VERY difficult right now. In addition, there were no surprises on the EIA inventory report. Gasoline prices continue to rise as refiners are producing more diesel to export. Basically gasoline is in an old fashioned supply/demand economic scenario. If demand picks up, supply will be tight, so refiners are keeping margins higher right now to be safe. Inflation data cooled to 5% year-over-year, so the stock market took off higher, but crude oil prices held. Most traders are split on whether the move down on inflation is still enough to stop the FED from raising rates at the next meeting. Many banks are starting to call for recession in the second half of the year. Even in recession, the strength of the dollar has dropped almost 10% from it’s peak six months ago, which is now supporting higher oil prices. So if recession and a stronger dollar returns, we might experience an inverse relationship in the US. Crude oil prices could fall, but gasoline and diesel prices will remain higher based on local production vs export production. We have seen the Group spot price on diesel jump dramatically this week as farmers hit the fields. In our market, based on the Chicago Mercantile Exchange, we are watching to see if there will be a familiar move in spot pricing jumping higher when planting starts in the Eastern Midwest. Only time will tell.

In local news, I do not expect to see much change in gasoline prices. Gasoline spot prices are more in a holding pattern. So I would predict by the end of the weekend most retail markets will be at a stable market price. Diesel prices have continued to climb all week, so I expect to see retail prices at the pump continue to rise into next week. I am predicting a short-term blow out in diesel prices at some point in end of April or May as farmers start to plant for the season. The level of increase will depend on how fast the harvest goes. If almost all farmers start planting at the same time, prices will jump much higher compared to a steady spread of planting. The weather will affect the speed of the planting. Again, only time will tell.

Propane prices continue to trend higher, however lower in price compared to last year. I truly believe that refiners have carved out a floor for propane prices on next season’s contracts. There is just a price that producers can’t sell below and make the necessary capital investments needed for production and exportation. I do think we will see some better summer fill pricing, but like I have been saying, this is a year where there could be a larger spread between summer fill spot pricing and next season’s heating contract. The good news, is that the market is showing that next season’s contracts will probably be lower in price compared to last year. Imagine that! Customers might have a lower cost of heating with propane compared to the cost of everything else going up. 🙂

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

Best regards.

Jon Crawford – Pres.

OPEC+ Throws The World A Curveball

Posted on April 7, 2023April 7, 2023 by Jon Crawford

Good morning!

Happy Easter weekend! The big news of the week started Sunday when OPEC+ announced a surprise additional oil production cut of 1.2M barrels/day starting in May. All American oil analysts were convinced that OPEC+ was going to hold to the current cuts in place. The announcement caught everyone off guard and crude prices soared over $4/barrel, pushing WTI crude price back over $80/barrel. Remember, WTI crude price was down to almost $65/barrel just two weeks ago! Clearly OPEC+ is sending the message that they will not let WTI crude prices fall below $70/barrel and prefer to keep prices even higher. The majority of the cuts are being led from Saudi Arabia with 500k/barrels per day. Iraq and UAE are the next two leading the charge. Some analysts are now spooked that if summer demand is higher than predicted, $100/barrel crude oil is back on the table. The cuts were a reaction to the fast fall in price a few weeks ago due to the banking financial crisis in the US and in Europe. OPEC+ wants to remain ahead of the monetary crisis and control crude prices. The only good news is that we are seeing a “floor” forming for crude price which does provide some stability. Although the price is higher than anticipated, stability is very important for future purchasing. In the US, the financial and economic measures are just a mess and making everyone scratch their heads. Large companies continue to lay off thousands of employees, job openings dropped a touch, and jobless claims rose a tiny bit this week. However, the stock market went up, along with gold which is extremely rare. In addition, the most amount of cash poured into money markets the past month, while treasuries and bonds fell in price. Like the episode “The Opposite” in Seinfeld, the market is behaving very strangely and causing everyone to take pause. Almost all major institutions are saying that they have no idea what’s going to happen this year. The predications are very vague and broad. Although crude prices soared, the crack spreads for WTI crude collapsed but recovered a bit towards the end of the week. The interesting effect of higher crude prices is that American drillers will continue to produce at high levels for exportation purposes while also being able to fully supply the needs of the US, especially if the US falls into recession. And since diesel is in such high global demand, and diesel is easier to refine from crude oil compared to gasoline, many are predicting that most refiners will make more diesel than gasoline. The residual affect from high diesel production will mean lower prices in the US for diesel, but higher prices on gasoline. In addition, more refiners are coming back online this year. So for the first time that I have seen in 15 years, we could experience lower prices of diesel and possibly gasoline in the US compared to the value price percentage of crude oil. But honestly, with the Russian/Ukraine conflict escalating, China and the US fighting at almost a cold war level, Israel and Palestine starting to fight again, and countries cutting deals with China instead of the US, who knows what’s going to happen the rest of the year! All I know is that if OPEC+ stays the course, American oil production will be very robust. The much higher production of refined products will hopefully allow for more affordable gasoline and diesel in America as producers offset the profits with much higher export pricing.

In local news, crack spreads jumped all over the place during the past two weeks. Diesel prices have fallen back to their average for the month, but gasoline prices continue to slowly rise as summer RVP enters the market place along with less production. The world appetite for gasoline is not nearly as strong as diesel. In addition, I do believe that refiners are betting on a recession in the US and would rather sell less gasoline at higher prices than try to compete for market share. Time will tell as we get to the end of the school year and travel time begins. For the first time in a long time, higher earners in the US have reported that they are cutting back on high end travel. Although they are saying they will travel, the amount of money spent will be less. In addition the US continues to experience record credit card debt, falling home prices, increased prices of cars, student loan payments starting back up, and record layoffs at large companies. Therefore, the US is not heading down a positive path. I also believe that the FED will raise rates at least one more time. Our economy is close to breaking, but not quite yet. I really think that there will be a mini recession and I advise all consumers to be ready with savings for at least one to two years to avoid having to borrow money at extremely high interest rates in case of emergency.

Propane prices rebounded a bit with the rise in crude oil price. But with higher crude oil prices comes more production. The US continues to have excess inventory of propane due to the mild winter. Going into summer, I expect to experience lower propane prices for summer fills as suppliers build allocation for the next winter. But from what I am deciphering in the marketplace, even propane is carving out a bottom on future prices for the winter. I believe suppliers are sending the message that they just wont sell propane below a certain price due to cost of operations as well as the growing movement towards energy transition. The good news is that I do believe that summer fill prices will be attractive and next season’s heating contracts could be lower than this winter. In a world where most goods and commodities are increasing in price, propane prices might fall. There is still much value in propane compared to crude oil price and consumers might be pleased that they can budget less money for heating their homes next year even if the economic wheels fall off in our country.

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

Best regards,

Jon Crawford – Pres.