The Little Engine That Could…

Good morning!

Happy Friday! The data released this week is causing much confusion and forcing traders to take pause. For months now, the fear of recession has loomed over the markets.  Analysists have been waiting patiently for earnings and Q2 GDP data to be released that would either confirm their fears or maybe kick the can down the road.  Well, this week was a head scratcher.  Earnings from big retailers showed slow growth and guidance was weak.  Walmart showed slowing sales.  GM was down.  Facebook and other advertising-based tech companies all showed slowing growth and weak guidance. And then the GDP report for Q2 showed almost another 1% contraction, confirming two straight quarters of negative growth to start the year.  By mid-week, most folk were confident in calling the “down-cycle” to continue.  But then on Wednesday, the EIA reported draws on crude oil, gasoline, and diesel.  The draws were a surprise that possibly demand was still intact at current price levels.  Then Ford and Amazon hit their numbers out of the park reversing the negative earnings trend for the week.  Biden and Xi met and are trying to “mend the fence” for China and America to work better together.  Ukraine and Russia struck some food supply export deals.  Europe is starting to get control of their nat-gas situation.  And no one believes that OPEC+ can increase crude production into the end of year.  Basically, market started to shrug off the fears.  Oh, and did I mention that the FED officially raised rates another .75%, confirming the two largest back-to-back rate hikes in over 20 years?  Even the FED announcement on Thursday did nothing to stop the markets grip on positive sentiment.  WTI Crude prices are climbing back to $100/barrel.  Supplies are tight, but we are winding down from high demand seasons across the globe.  Is the rally real, or are we setting up another head-fake going into the end of the year?  I believe the reality of where we are heading will start to flush out by end of September.  Until then, emotions on news stories will run the market.

In local news, gasoline and diesel prices continue to slowly drop.  Unless we have a major refinery issue in the Midwest, I do not expect to see gasoline retail prices above $4/gallon, and retail diesel should remain below $5/gallon.  The foundation is shaky, but it’s much better than last month.  Now we need to hope for a staggered harvest.  A rush-harvest could really cause some supply issues in the Midwest.  But that’s a couple of months down the road.

Propane is continue it’s skip along the bottom.  I can not continue to stress enough the value of propane at current prices.  Propane inventories are not in great shape right now.  We did not build national inventories to levels that I am comfortable with for this time of the year.  If we have a strong corn drying season and a cold winter, propane prices will go up dramatically.  In the past, Canada rail propane has been our savior.  But this year, new petrochemical factories have opened in Canada which will take most of the excess propane that could be shipped to the US.  I am not sounding any alarm bells or asking for panic.  I’m just saying that don’t relax on propane based on current market conditions and past experiences.  If you have not filled your tank this summer, please do so.  And I highly recommend contracting some propane for the upcoming heating season.

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

Best regards,

Jon Crawford

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