Good morning!
Happy Friday! I hope this post finds everyone well. I was gone last week on vacation and so much has happened! There has been movements on peace in Ukraine, escalations of the conflict, Russia threatening to only accept Rubles for payment on gas, possible poisoning at Russia/Ukraine negotiations, Russia saying they will withdraw troops from central Ukraine but instead moving more troops to the center, Syria sending air support to Russia in return for Russia’s help back in the day, the US and more sending military equipment and aide…. Basically, the war is still going strong and no one knows exactly what is going on. OPEC+ has decided to keep production increases to a minimum which makes sense after President Biden announced a record 1M barrels/day of crude oil releases from our strategic reserves for 180 days. Biden did this saying he understands the economic pain we are going through at the pump and this will help. Well, it’s a start, but it won’t do much. Demand is still very strong and without a clear and dedicated plan to refill the reserves, OPEC+ will continue to hold their plan steady. I said a month ago Biden should have released 1M/day. We are now doing too much too late. The only way we can really threaten OPEC+ now would be to approve the Keystone Pipeline with direct guidance to use the pipeline as a means to refill our strategic reserves at discounted rates. If we could pull that off, we would be able to greatly influence the world oil markets. But right now, OPEC+ can sit back with discipline and let us drain down our reserves. Even if we get 3-5 months of price relief, the market conditions would have to improve with Russia by then in order to keep prices from whipsawing back higher. As you know, I have been against the Keystone Pipeline because the US was not benefiting enough from the original agreement. Well, now we have an incentive and we should leverage that incentive with Canada to get it done. But if just approve the Keystone under current terms, I don’t see much benefit to the US long-term having the pipeline run through our country.
In other news, the short-term and long-term bond rates continue to invert flashing signs of recession. Although the labor market seems to be strong, it’s not enough. We have so many Americans that have left the workforce and with permanent changes to retail that demand more labor, the US just can’t supply the market with enough workers. Couple the labor issues with record inflation and record high home prices, I see very choppy waters ahead. Although I would like to see lower oil prices, I would hate to see those lower prices come at the price of economic collapse. Unfortunately, I am seeing more signs that an economic slowdown and possible recession are on the horizon. If the war in Ukraine drags on much longer, I’m just not confident we have enough tools in our toolbox worldwide to save ourselves from some major economic problems.
In local news, gasoline retail prices have finally stabilized under $4/gallon and diesel retail is starting to get under $4.75/gal. There is a major cost discrepancy between gasoline and diesel. As a consumer, you should watch the price of diesel more so than gasoline. Diesel supplies are tight across the country and with higher diesel prices come higher cost of all goods.
Propane prices continue to be fairly stable but are at record highs for this time of year. Demand is strong as winter holds on for another month. Unless we experience a dramatic change in crude prices, I do not see propane prices getting much cheaper this summer. The main issue with propane, like last year, will be supply. We are going into inventory building season with extremely low inventory like last year. The only event that saved us this winter was the lack of corn drying demand. If we end up like last year with low inventories going into the fall, but have a high corn drying demand season?…. Look out…. Contracts for next season will be out this summer and I will probably be recommending that everyone lock in their prices for some protection and predictability.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford