Good afternoon!

I am writing my update early since tomorrow is Good Friday and most oil traders take the day off. Crude oil prices continued to rise at the beginning of the week. Ukraine continued to bomb Russian oil refineries forcing Russia to cut production. Iraq and UAE had troubles making production quotas in February. The EIA reported another draw in crude oil supplies in America. China’s economic data started to show signs of life. And the CERAWeek conference in Houston discussed how crude oil demand will continue to increase over the coming years. In addition, if AI truly takes off across the globe, our world energy usage could increase anywhere from 25-50% globally! The numbers are absolutely bananas! The harvesting of crude oil and natural gas will have to increase in order to supply enough energy. We just do not have enough alternative energy sources, nor can we build alternatives fast enough. However, after WTI prices hit the highest price again in many months, a short pause landed towards the end of the week. The FED decided to hold rates. The EU is holding rates. The strength of the dollar remains high. The strength of the US Dollar puts strong downward pressure on crude oil prices. In addition, the potential economic collapse in the commercial real estate market is starting to take shape. As previously discussed, the majority of all commercial real estate loans are held by small to midsize banks. Commercial property values have fallen as much as 50%+ over the last year or so. The use of Commercial Mortgage-Backed Securities (CMBS’s) has rocketed over the past years and now loans are coming due. Basically, what happened in the great housing collapse of 2008 is starting to happen in commercial real estate. The potential for a major collapse is producing economic headwinds in America. There is also some light starting to shine through for a possible ceasefire in Gaza. Many groups and representatives are talking. Hopefully there could be a deal in the place over the coming week or so. At the end of the week, the crude rally finally paused and took a breather. WTI Crude price relaxed a bit but is still remaining above $80/barrel. There is a potential for WTI price to fall back below $80/barrel, but I am still bullish on crude oil prices in the near term based on market fundamentals and geopolitical issues. There is still the possibility of a contagion sell-off in Q3 through Q4 of this year. For now, sit back and kick your feet up for a bit. It’s nice to catch your breath every now and then. 🙂

In local news, the Chicago spot market finally started to sell-off basis differentials and move closer inline with Group prices. Therefore, I believe we might have peaked on refined prices in our Chicago spot market. We could start to see retail pump prices come down next week if the crude breather continues.

Propane prices held fairly firm this week. Propane price mostly followed crude. However, we are building national inventories a bit earlier than normal, so the potential for prices to fall later in the year could take shape. Basically, prices could slowly rise all summer and into the fall. Then if there is weak corn drying demand and a warm start to the following winter, prices could sell off. We had this happen the year prior. During the 2022-2023 season, the highest price for propane ended up being in the summer! I believe it’s still to early to hedge your bets with propane. Let’s first try and get through this warmest winter on record, and then see where we sit when the dust settles at the end of April.

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

Best regards,

Jon Crawford

Greetings!

Well, another week went by and the bulls continued to fill their bellies. The war in Ukraine escalated this week. Ukraine bombed three Russian oil refinery/production facilities. The attacks took out possibly 200k bbd of crude oil production. Even though other oil producing countries can quickly make up the difference, the calls went radio silent and the countries decided to the let the bulls continue their run. The war in Gaza seems to have no end in sight. Ceasefire talks failed to materialize again this week. However, the US engaged Iran with talks discussing deescalating the Houthi attacks in the Red Sea. The talks were the first between the US and Iran in over ten years. Iran agreed that deescalating the Houthi attacks are in both parties’ interest. However, many in the world community do not believe that Iran will do anything. In fact, now Iran knows that the US is struggling to contain the Houthi attacks. Some reports now say that attacks might increase due to the talks. China and Japan seem to have found some bottom support in their stock markets. Outside money seemed to slowly trickle back in. Inflation data in the US continued to show a hot economy and supported pushing out rate cuts. And then in a surprise press release, the IEA changed their call to world oil crude supplies falling into deficit this year. Since the beginning of 2023, the IEA called for oil supplies to be in surplus all of 2024. The news this week continued to support higher crude oil prices for the near-term. But the horizon is starting to look a bit hazy. Jamie Dimon from JP Morgan/Chase raised his call of the US falling into recession by mid 2025 to 50%. Many oil traders liquidated long oil positions starting in Q4 of 2024 and beyond. The stronger dollar is probably keeping a lid on WTI price from flying to $90/barrel. But I do think that $80/barrel WTI crude oil will remain for the coming months. The upcoming summer demand and inflationary data through Q3 of 2024 will tell us more. For now, keep your seat belt on and hold tight. Many traders are calling for $100+/barrel oil, but I think that’s a trap based on the very long positions in crude. Patience wins the race and as I have been saying since the end of 2023, 2024 will be a cost-average year with maybe only locking up 25% of one’s petroleum needs.

In local news, the Chicago spot market is not in great shape. The higher spot prices in the Chicago market are looking to hang around for some time. Bp Whiting is still not pumping at full speed. Mobil refinery had a flaring event that shuttered some production. Citgo refinery had an oil leak reported. And then three other refineries announced upcoming maintenance in Q2 of 2024. Therefore, the Chicago refinery market is feeling some short-term pain. I expect Chicago spot economics to run a bit higher compared to our neighbors in the Group for the next few months. Hopefully by summer, Chicago production will be in full-swing and spot prices will drop lower than the Group. In the meantime, I expect to see retail prices of gasoline and diesel to be very choppy. The Chicago spot market trade will be very volatile and the prices at the pump will reflect accordingly.

Propane cost continues to trade at a decent “percentage to crude cost”. However, in my opinion, the devil is in the details. If crude prices stay high, propane cost will trade very flat. And if crude prices drop, the production of propane will also drop. However, the drop in price/production might not cause the price to run much higher because there is so much room for the “percentage to crude cost” to move higher. If crude prices fall and propane prices stay flat, many retailers will pile into future purchases which suppliers want. I think suppliers could use the “percentage to crude cost” to coax retailers to the buyer’s table. Propane inventories also started to build this past week. Usually propane inventories don’t experience an inventory build until April at the earliest. Although national propane inventories are at lower end of the five year average, I could see propane inventories building quickly this summer. In addition, the farm season is not looking good so far which means a potential weak crop drying demand in the fall. I’m still sticking with the possibility for some lower summer-fill prices on propane and next year’s propane heating contract prices to be very similar to this year’s prices.

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

Best regards,

Jon Crawford

Good morning!

Happy Friday! The news cycle this week continued with much of the same old same old as last week: Houthis continuing their threats in the Red Sea, the war in Ukraine slowly grinding in the favor of Russia, the FED sending mixed messages on rate cuts, China’s economic data still being poor, the IEA saying oil demand will decrease, OPEC+ saying oil demand will increase, and a “devil in the details” EIA report. The news of the week continued to support WTI crude oil prices, even though in my opinion, the news was bearish. Again, the market continues to act irrationally. The EIA report announced a smaller than expected build in crude oil inventories. However, there was an outage on the Keystone Pipeline that supplies Conway with storage barrels. Therefore, the smaller build in inventory was due to restricted crude oil shipments flowing into storage. And FED Chairman Powell reported on Wednesday that rate cuts are almost ready to go. But today the jobs report was red-hot showing that the economy is still going strong. So within two days, Powell’s speech was basically pointless. The economic data is still showing inflation stronger for longer. All the news this week continued to keep WTI prices in a narrow trade range between $78/barrel and $80/barrel. For now, the bulls seem to be holding on to anything that will keep prices high. I still see rate cuts coming later this year, but maybe only one to three total cuts. I also tend to put my money on history. History shows that crude oil prices usually drop going into a Presidential election. Again, I believe patience will win this year and opportunities for buying crude oil at lower prices will come to fruition at various times throughout the remaining year.

In local news, the supply of gasoline in the Chicago spot market seems to have finally balanced out. The cost of gasoline dropped in our market since last week. Therefore, I do expect to see gasoline retail prices drop. Diesel prices in the Chicago spot market continue to be stubborn and remain higher compared to our neighbors in the Group spot market. Diesel cost on the CME followed NYMEX crude oil prices in tandem. Therefore, since diesel cost increased a bit in our local spot market, I do not expect to see diesel retail prices drop in the first part of next week.

Propane prices traded in a very narrow range again this week. Even though warm weather is demolishing heating demand, exportation of propane remains at record levels. Our national inventories are now officially below the 5-year average, even though we are possibly experiencing the warmest winter on record. But the out months on propane futures are firming up due to the possibility of supplies being short if there is a colder winter in the future. Many companies are starting to place long bets on propane futures over the next two to four years. I still believe we will have some better retail prices on propane for the summer. But I could see next year’s contract pricing being almost the same price as this year.

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

Best regards,

Jon Crawford

Good morning!

Happy Friday! The news cycle this week was filled with contradicting predictions on future price of crude oil. Crude prices are going to close today with back-to-back weeks of gains. I am baffled by the increased price this week based on the data. But once again, markets are irrational. China released data to start the week that was absolutely terrible. The real estate crisis in China has spread to all aspects of the economy. Xi Jinping announced again that The People’s Bank of China will be injecting cash into the system to hold off a continued massive sell-off in their stock market. In addition, Chinese GDP contracted and predictions for crude oil consumption were cut in half for the coming years. The news out of China was completely bearish. But the bulls won the day due to the announcement of a potential ceasefire in Israel/Gaza. Usually, such an announcement of potential peace in a conflict would make crude prices drop, as geopolitical tensions would start to dissipate. But crude oil prices popped due to markets believing that if the war ends, demand will start to pick up all over the Middle East. The bet is very risky and not supported by history, so I was very confused by the market reaction. The FED announced the adjusted CORE inflation number for January. The rate was 2.8% which is above the FED’s target rate. And CPI in January increased to 3.8%, which is the largest month-over-month increase in almost a year! The announcements from FED governors supported delaying rate cuts until at least the second half of the year. Therewfore, based on the aforementioned FED data, the dollar will stay stronger for longer. A strong dollar puts downward pressure on crude prices due to crude oil being traded in dollars on the world market. But again, crude prices popped on the news because the inflation numbers “were in-line with expectations.” Wow! Markets predicted higher inflation and a kicking of rate cuts down the road which truly makes crude oil cheaper. But because their predictions were confirmed by the data released, the market celebrated and raised crude oil prices! Once again, markets can be irrational. In world news, the International Energy Conference was held in London and the big talk was that US fracking production would peak and decrease causing market tightness. In addition, most believe that the world is not investing enough in crude oil future harvesting to meet the world demand. The conference continued to fan the flames of a crude oil rally, even though demand in China is falling and the potential for demand to drop around the globe is possible over the coming years due to economic pressures. The conference continued to contradict itself all week. OPEC+ is leaving millions of barrels of production on the sidelines. Russia and others are making changes to ensure that all petroleum products get into the marketplace. And OPEC predicts crude oil market demand will contract in the coming year-over-year even though OPEC is keeping cuts on the table. Therefore, all the talk at the conference was contradictory but the bulls latched on to every word that supported higher oil prices. And for the cherry on top, Iran announced that they will be ending their program of enriching uranium for nuclear weapons. The announcement was a huge surprise and de-escalation of potential future conflict in the Middle East. Even though Iran has enough enriched uranium to build some nuclear weapons, the announcement to cease further production is a big deal. But even that news did not cause crude oil prices to drop! To be fair, there was some bullish news reported this week. In America, traditional diesel supplies are continuing to run at lower inventory levels as more renewable and biodiesel enter the marketplace. Basically we are at a point in time where “green energy” diesel is making up the gap in production of traditional diesel. So why is the news bullish? Well, the majority of biodiesel comes from soy. And a lot of diesel is needed to plant and harvest soy. Then there is the energy cost of making the biodiesel. Therefore, we are increasing the use of diesel and driving up the price of soy oil on the open world market. With higher soy oil prices worldwide, many poor countries are forced to buy palm oil which produces the most amount of pollution compared to any other oil. So our EPA rules for cleaner diesel are actually increasing the use of traditional diesel and driving up pollution releases in poor countries. The news caused crude oil prices to pop due to a potential increase in diesel demand that is currently not being supported at current production levels. And then the geopolitical issues of the week were very bullish and supported higher crude oil prices. Russia continued to make advances in Ukraine. Ukraine is struggling to hold. Putin gave his yearly address and stated that he will not take his foot off the gas. And if NATO troops show up in Ukraine, Russia will be forced to reestablish their nuclear missile program. The speech sent jitters through the market because France has floated the idea of sending troops to Ukraine. If any NATO countries send troops into Ukraine, the escalation in the war would go through the roof. And at the end of the week, the potential for a peace deal in Gaza was halted when a humanitarian food supply convoy was attacked. Oh, and another fun fact; during the past two years of being distracted with the war in Ukraine, North Korea now has nuclear weapons that are capable of striking the US. And North Korea said they would be happy to sell their nuclear weapons to Russia. So at the end of the day, even though the bullish news of the week was extremely contradictory, the bullish geopolitical risks are winning the race to the finish line. Personally, I believe WTI crude oil prices are a little over-bought. But any correction downward on WTI crude oil has major support at $70/barrel.

In local news, the Bp Whiting refinery is back to full production and starting to back-fill their supply deficits. Right now they are working on resupplying all their branded fuels, and then they will work on unbranded fuels. The news caused national crack spreads to drop and prices of gasoline and diesel in the CME spot market to drop. However, at the end of February, the future March contract expired and the April contract started trading. In April, gasoline is required by the EPA to meet a summer vapor pressure spec of 13.5 PSI. Therefore, although crack spreads were dropping, gasoline prices went up due to refineries having to start production of summer gasoline that costs more to manufacture compared to winter gasoline. Unfortunately, I do not see retail prices for gasoline or diesel dropping much at the pump.

Propane spot prices fell a bit this week due to extremely warm weather. However, the out-months on propane have firmed up and found support. The support is coming from high levels of national exportation and the belief that crude oil prices will remain higher for longer. Although we might see some cheaper summer fills, the long outlook on propane shows higher prices. But I don’t expect those prices to jump over $2.00/gallon at retail. So overall, very affordable propane prices remain on the horizon for the coming years.

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

Best regards,

Jon Crawford