How Low Can You Go

Good morning!

Happy Friday!  Crude prices are starting to do “the limbo” game.  The bar continued to be lowered this week and traders kept passing through without touching.  As of today, WTI prices are now LOWER than when the war in Ukraine started.  WTI crude price is looking at closing below $90/barrel this week.  The crack spreads on gas and diesel have collapsed as demand erosion spreads across the US and Europe.  The fear of continued economic recession has gripped markets tightly.  In addition, a higher than expected jobs report today gave further fuel to the FED’s tightening policy.  For now, we expect interest rates to continue to trend higher. The backwardation curve on crude prices has falling even lower.  Citi Bank is now calling for WTI prices to collapse towards $65/barrel.  However, unlike market collapses in the past, most believe that OPEC+ will step in at $55/barrel and start production cuts to keep prices from falling below the minimum sustainable operations and profitability price point.  OPEC+ is also expected to announce a minimal increased production level beyond the agreed upon quota to appease Biden from his visit last month.  The unknowns at this point are hurricanes.  Hurricanes could actually cause massive price spikes over the next couple of months.  Even though crack spreads are falling, we are still one refinery shutdown away from going into deficit production.  Hurricanes are already more common this year compared to last year.  We’ve had three named storms already this season compared to only one last year at this time.  And last season was one of the most active storm season’s in 50 years.  For now, we can enjoy some relief on prices at the pump, but be prepared to jump higher if hurricanes take out the Gulf Coast production.

In local retail news, gasoline and diesel prices continue to trend lower.  In looking at the spot market collapse this week, I expect to see prices at the pump to go even lower next week.

Propane prices continue their stable trend of bouncing along the bottom of low prices.  However, propane inventory data from Canada was confirmed that supplies are 50% lower in the East compared to last year.  This means that if we have to rely on Eastern Canadian propane for a cold winter, prices will be very high.  I still recommend filling your tank now and locking in some gallons for the upcoming season.  Cost averaging is the best form of price protection.  Market timing in these volatile times is luck, not skill.  🙂

If you have any questions, comments, or concerns please feel free to give us a call.

Best regards,

Jon Crawford

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