Already Cancelling Christmas???

Good morning,

Unfortunately I do not have any good news to report this morning.  Back in 2020, the IMO (International Maritime Organization) lowered the allowable sulfur content in diesel fuel for international shipping.  At the time, the change was going to disrupt the world diesel production and cause massive pain points in world diesel supply.  Well, Covid hit and the fears of the IMO Standard came and went due to decreased shipping demand.  The refiners of the world were able to slowly retool to capture the market change.  Everything was scaling out properly until the war in Ukraine started.  Now the world is trying to reorganize the entire diesel supply chain while shipping is coming back to full strength.  What we thought could happen in 2020 is happening right now.  World diesel supply is an absolute disaster right now that will not get better until maybe next year.  There is not enough refining capacity to meet world diesel demand due to shuttering the Russian supply.  There is spare refining capacity coming onboard across the globe in the coming year, but until then, I don’t see much relief for diesel.  And unfortunately, if diesel prices stay high, all goods and services will remain high in price regardless of raising interest rates or dropping tariffs on Chinese imports.  Inflation has not peaked and until diesel prices ease, we are in trouble.  Congress is trying to pass a law punishing oil companies and retailers saying we are price gauging and taking advantage of customers.  Biden wants to drop import tariffs on China.  The FED wants to keep raising interest rates.  All of the these scenarios would usually lower oil prices which lowers inflation.  The problem is physical supply, not a weak dollar.  OPEC is struggling to keep up with oil production and exports.  The US is shipping out our reserve oil to Europe.  This week the IEA released their disappointment with Biden releasing such a massive amount of reserve oil without asking the IEA.  The IEA believes the move plays into the hands of OPEC because OPEC can ride it out.  I wrote about that scenario a few weeks ago with “Too Much Too Late”.  Although our dollar is trading at incredible strength, demand is eroding in China, and the stock market is in correction, inflation will be with us in the United States with no relief in sight.  I have been writing for a month now to watch the price of diesel, not the price of gas.  I hope everyone has a good job and plenty of savings, because at this rate Christmas could be cancelled by the Fourth of July….

After dropping in price to start the week, gasoline and diesel prices ripped back higher.  Gasoline retail will be holding well above $4/gallon and diesel retail near $5/gallon for possibly the next few months.  I just don’t see much relief in sight.

Propane prices continue to trade in a narrow range as the national inventories start to rebuild.  So far, inventories are rebuilding at a decent rate.  We are not out of the woods into the “comfort zone” by any means, but I’m cautiously optimistic.  I still do not see much relief in prices for summer filling.  With crude prices remaining strong, propane price just doesn’t have the room to fall.  Stay tuned for next season’s contract prices.  We hope to have something out in the coming weeks.

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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