Chicago To The Moon!

Good morning!

Happy Friday!  WTI crude prices continue to remain above $100/barrel as the war in Ukraine rages on.  Crude prices soared on OPEC+’s commitment to their production strategy and the EU ending Russian imports by year end.  Libya also lost control of a major production facility to political insurgents.  The loss of Libya production coupled with draws in US inventories being exported pushed WTI closer towards $110/barrel.  But then Germany threw some cold water on the party saying that they are reopening a ton of oil wells in the Black Sea that will replace Russian imports by years end.  Then the FED said that 50 basis point rate hikes are on the table for the out of control inflation plaguing our country’s economy.  And China’s economic “reopening” is not going well at all.  There are now four times as many ships sitting outside China waiting to unload and load as there were in 2020 when the the world shut down.  If we thought supply chains were a mess before, hold on to your hats!  I believe our supply chain issues could see the hardest times yet this summer!  The end of week news pushed WTI crude back down towards $100/barrel.  Although the prices for crude dropped nicely, the prices for refined products in certain spot markets did not follow accordingly.

In Chicago, a refinery maintenance issue coupled with upcoming summer demand has caused cash basis spot pricing on gasoline and diesel to skyrocket.  The cost of gasoline is now almost 30 cents per gallon higher than it was a week ago, and diesel cost is now over 40 cents higher.  Our market in Wisconsin, is mostly based on Chicago spot pricing along with the Group to the west.  The Group was already struggling to keep supply steady, while Chicago was offering steep discounts to help move supplies.  Now, the tables have flipped.  Chicago spot market is now HIGHER in cost compared the Group.  The flip in economics means that the retail price of gasoline and diesel is going to be much higher next week.  I expect to see gasoline retail price hit or exceed $4/gallon and diesel retail prices to hit or exceed $5/gallon.  Unfortunately, we have a LONG way to go before gasoline and diesel prices settle down.  I am now predicting that gasoline retail will be between $3-4/gallon and diesel retail $4-5/gallon for the remainder of the year.  It’s the one prediction that I hope I am wrong!  🙂

Propane prices are holding very firm on skyrocketing natural gas costs.  As natural gas prices rise, companies look to propane as an alternative fuel for production.  And since Canadian inventories are very low, as well as America’s inventory, the markets are going to price propane accordingly to try and keep as much on hand to help avoid a supply crisis next winter.  The late season cold weather is keeping propane inventories from building into next heating season.  The longer lasting cold is also pushing off the planting season for farmers which raises the probability of a later harvest.  And usually a later harvest means more crop drying demand because farmers lose a month of natural drying weather during optimum crop growth maturity.  For now, I do not expect to see propane prices move much lower.

As always, if you have any questions, comments, or concerns, please feel free to contact us!

Best regards,

Jon Crawford

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