Pump Up The Jam

Good morning!

Crude prices continued to move higher this week with a small relief starting on Friday.  High hopes of economic recovery are fanning the flames of anticipated record demand.  Many investment banks and so-called “industry experts” are saying we will experience the largest demand increase in history over the coming months. Goldman Sachs continues to push their crude call-price higher and higher saying a 5M bpd increase is going to cause shortages and supply tensions.  In fact, the amount of “pumping up price” talk going on feels like when crypto annalists get on the airwaves to move the price of Bitcoin.  I like to take a step back and look at the big picture.  Yes, demand increases are coming.  We might even experience a 5M bpd increase.  However, there is almost 15M bpd crude production offline voluntarily between OPEC+ and the US!  In addition, Libya just released their hold on crude exports.  The US is looking to allow Iran to increase exports with transparency in exchange for a new nuclear resolution.  Russia and the US are starting to bicker and Russia is not afraid to play politics with their oil supply.  And at these high prices, OPEC countries could finally start to take advantage and make some money.  In addition to the crude markets being well positioned to increase production, refineries in the US still have an additional 10% of increased capacity to meet local demand!  And most refiners locked in crude prices at lower prices so there is nothing holding them back from refining crude!  In other words, the crude market is feeling very frothy with “pumping up price” stories.  I think we could see some higher prices until greed takes over and surplus production starts to enter the market.  But after 2020, who knows!  As always, this is just my theoretical analysis.  In the world of commodities, anything can happen.  🙂

In local retail news, gasoline and diesel prices continue to climb.  Diesel retail prices are getting very close to $3/gal.  In fact, I saw a few smaller markets with diesel prices over $3/gal.  Gasoline retail is holding near $2.74/gal in most markets.  I was quite surprised by the run up in price this week.  If the markets were truly being “pumped up” to cover a squeeze on future options, we could see some relief on pricing in May or June.

Propane prices have started to rise again in tandem with crude oil.  Propane supplies are tight as we start the rebuilding season, but not as bad as years past.  In addition, April has been much colder and May is not looking to start out much better.  The wild card compared to years past is high levels of exportation which we are watching closely.  I do not think that summer fill prices will get much lower than today’s prices.  With so much uncertainty in the propane market, I also do not expect to see next season’s contracts released until mid July.  For now, it’s all about being patient and waiting for the right opportunity.

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

Best regards,

Jon Crawford

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