Crude Prices Collapsing, But Don’t Exhale Just Yet

Good morning!

Happy Friday!  Lots to get caught up on here.  I was on vacation last week so I’ll cut to the chase.  Going into this week, the big news was going to be whether or not WTI crude prices can hold above $80/barrel.  Last week crude prices sold off a bit but as prices started to touch closer to $80/barrel, support started to build.  In addition, the US announced that they would refill the petroleum reserves at $80/barrel which actually supported higher prices in crude!  Announcing the “strike price” on a reserve refill gives support to future pricing.  If the US wanted to refill reserves, the strategy should be to make no announcements and “slow and steady” purchasing.  Basically, you want as few as people to notice when you are buying.  So going into this week, support at $80/barrel was VERY strong.  By the time of this writing, WTI price fell BELOW $80/barrel, even after all the support built in last week.  The UK announced rates cuts at a time of record inflation pushing markets on Friday into a tailspin.  The strength of the dollar soared to new highs out of the gate this morning and the bottom fell out of the market.  I guess for now, it’s time to go to the kitchen and make some popcorn.  The next level of support is under $70/barrel.  The looming issues still causing mild jitters are Russia threatening to use nukes and hurricanes hitting the Gulf of Mexico.  For now, sit back and be patient.

In local news, as crude oil markets collapsed, gasoline cost soared over $1/gallon higher in the Chicago spot market.  Yes, you read this correctly.  Gasoline prices went up $1/gallon in three days.  A Bp refinery in Toledo suffered a massive explosion killing two people this week.  The loss of the refinery puts immense pressure on an already tight market due to short supplies in the neighboring Group market.  Diesel prices did not go up as much since gasoline supply is much tighter.  My recommendation is to fill up you car because prices could get ugly for awhile.  Once a roadmap to normal supplies is realized, prices will fall faster than you can blink!  Retail markets are going to be very interesting in Wisconsin for the coming weeks.  Harvest is starting to take shape so demand for diesel is going to skyrocket.  So far, markets seem to be prepared and we hope to scoot through the next month.  However, a hurricane to the south or east coast could mean disaster with the Chicago and Group struggling to find supply reliability during this time.  There will be no spare capacity in either market to help out the East Coast or Gulf Coast.

Propane prices continue to hold as supplies are looking better than last year.  However, we are still under the five year average in national inventory and corn drying has not been completed.  We will know in a couple of months how propane is positioned for winter.  But if crude prices truly collapse going into an economic downturn, propane prices might be held in check.  The winter is predicted to be colder than normal, so a potential offset to low crude prices might occur due to increased winter demand.  As always, only time will tell.  But for now, at least propane supplies are in better shape than a few months ago.

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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