Good morning!
Happy Friday! Well, petroleum commodity prices must be watching the Artemis launch to the moon with hopes of hitching a ride. From July 4th until about last week, petroleum products were enjoying a nice downward trend into a manageable price range. There was a palpable exhale in the air over the last month. Moods of consumers were improving. Farmers were optimistic. And the markets were happy to see another sign that inflation was easing and lower-cost energy could soften the recessionary blow. Wow…what a difference a week makes. OPEC+ announced this week that they will support Saudi Arabia in cutting production, if necessary, to keep prices high. The announcement came on the heels of a potential deal on the Iran Nuclear Accord, which Saudi Arabia is definitely opposed. The markets went into full panic mode and crude prices shot higher. The news was a definite blow to the Biden Administration in hopes that Saudi Arabia would help keep prices lower going into winter. Saudi Arabia does not approve of Iran bringing 2M barrels/day back into the market and poaching Saudi customers. However, the world NEEDS an addition 2M barrels/day of crude oil going into the winter. Right now, any additional spare capacity in the market has come from the US selling their Strategic Petroleum Reserves. The US has depleted 50% of the SPR and is now back at 1980’s levels. The sale of the SPR ends in October, just as the world desperately needs more oil for winter. The Iran deal was meant to plug the deficit after the SPR sale stops. If the Iran deal does not go through, and Saudi Arabia cuts production, I’m not sure the US has enough SPR capacity to keep markets stable. The world is in a definite “stand-off” on crude oil right now. The situation developed very quickly and clearly the negotiations taking place behind closed doors broke down and the markets were not prepared. I’m not sure what to anticipate at this point. The US Energy Secretary is calling to possibly cut back our record 11M bpd exports of petroleum products. But the US has also promised Europe we would help them. Biden and company are in big trouble and I’m not sure how this situation will play out. Regardless, US consumers are going to pay through the roof on heating bills this year for electricity, natural gas, and fuel oil. Propane has escaped the same trajectory higher in price due to known upper bound limits on exports and better ability to forecast. Although propane prices could blow out higher, most consumers are better price protected with future contracting. I truly believe that the US consumer will be drained of excess cash due to heating/electricity bills over the next eight months. Unless we have a silver bullet that pops the crude market, I see a hurricane disaster that popped up out of nowhere on the horizon.
In local news, prices of gasoline have stabilized but diesel prices have blown out to almost $1.50/gallon more in cost compared to gasoline! I have never seen the spread that wide in cost between gasoline and diesel. The Chicago market is incredibly tight going into harvest and spot cash markets are panicking. Retail price on diesel will potentially go over $5/gallon again. I’m hoping that maybe some of the ramping up in price is an end of month “short squeeze” due to refinery maintenance. But we just won’t know until after Labor Day.
As I have been writing all summer, propane prices have been fairly stable and are providing an incredibly valuable opportunity. The price of propane is relatively cheap compared to both natural gas and diesel. If propane supplies become pinched this winter, a major blowout in higher prices is very possible. Please take advantage of the current low prices and lock in some of your heating gallons for the upcoming winter.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford