FED vs Supply/Demand

Good morning!

Happy Friday.  We received some much needed rain in our area last night which was a nice way to start to the weekend.  Crude prices continued their run higher this week as crude inventories continued to decline in the US with record demand.  Anticipation of continued world demand is also keeping a strong bullish sentiment on energy commodities.  However, the FED on Thursday dropped some hints that rate increases will be moved up as well as increases of their inflation forecasts.  The dollar rallied against the main basket of currencies yesterday causing a midday crash in crude prices of over $2/barrel.  However, the crude markets recovered by the end of day and are surging ahead to end the week.  The energy markets seem to be all-in on a bullish run believing that supply will be tight around the world by end of summer.  I am not fully convinced of the bullish attitudes considering there is still a staggering amount of world crude production sitting on the sidelines waiting.  Meanwhile, the US has recovered to 11M bpd crude production with 92% refining capacity, and crude inventories are still dropping.  What the scenario says to me is that possibly our crude exports are very healthy.  Eventually, our competition is going to want a piece of that pie.  I could see someone blinking over the next few months and causing a correction in crude prices.

Although crude prices have increased, gasoline and diesel prices eased a bit due to continued increasing refining utilization and building inventories.  I expect to see gasoline retail prices hold near $2.79/gal and diesel prices near $3.00/gal.

Propane cost has continued to rise and does not seem to be showing any signs of decreasing.  Future pricing also continues to hold even though we are going into summer season.  I would like to point out, that although propane prices seem high, when looking at the cost of propane in comparison to crude oil, the current pricing on propane has good value.  Until crude prices collapse, I just don’t see propane prices falling lower.  When coupling high crude prices with lagging inventory builds, unfortunately I think these current prices on propane will be here to stay for a while.

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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