Holy Toledo Batman!

Good morning!

Happy Friday! A lot of action in the news this week affecting crude oil prices.  First, in global news, the Nord Stream pipelines look to have been sabotaged by Russia causing the largest ever release of methane gas into our atmosphere.  Although the pipelines are not in operation at this time, the lines are still pressurized.  Many believe that Russia is using the incident to show that all options are on the table to try and “win” the war in Ukraine.  OPEC+ will be meeting on October 5th to discuss potential cuts to production.  Russia is being said to request a 1M bbd cut in crude oil production due to the drop in price along with demand destruction hitting Europe, China, and the US.   Also, the continued strength of the US dollar is putting heavy downward pressure on crude oil prices.  But the biggest news of the week was hurricane Ian making landfall in Florida as a Category 4 storm.  The combination of all the events this week pushed WTI crude prices over $80/barrel for the first time since almost two weeks ago.  The Gulf Coast crude production of almost 200k bbd was shuddered from the storm.  However, production will resume starting next week.  In addition to the hurricane, a surprise drop in national petroleum inventories caused additional support to prices.  But I believe the EIA numbers were a bit off due to hurricane prep/panic and shutting down of production.  Although crude prices have gained momentum higher, the push/pull between supply/demand is going to be front and center going into October with the OPEC+ meeting.  I believe that cuts are already priced in at this time.  But demand erosion is a very large looming threat globally and I do not think we are out of the woods.  I could see crude oil prices going back down into the $60’s for a bit next year, and as long nothing goes majorly sideways in Ukraine, we should be capped under $100/barrel.

In local news, the over 100 year-old Toledo refinery owned by Bp/Husky might not be able to reopen until Q1 of 2023.  The refinery fire a week ago was on the heels of a major turnaround maintenance at the facility.  Workers have now been laid off which is not a good sign for the market.  Chicago market prices on gasoline are now trading at a 70 cents/gal premium compared to New York and the Gulf.  The 200k bpd refinery became a major supply point over the past two years due to the extremely tight refinery market.  As I have been writing, there is NO room for error with refineries and this is a major error.  The US does not have the refining capacity it once had and the continued closing of refineries is only making it worse.  And due to the Ukraine conflict, additional import capacity of refined products is capped.  Gasoline retail prices were about to drop below $3/gallon and now I don’t see that happening anytime soon.  Diesel retail prices should remain fairly stable, as BP Whiting refinery is the main diesel supplier to our local market.

Propane prices continue to surprise us with stability as corn drying season begins and winter approaches.  Although we are almost 15% higher in national inventory compared to last year, our numbers are still well below the five-year average.  Any sort of extreme cold weather event this year could cause a major spike in price on propane.  We highly recommend filling up your tank now and hedging a bit of your heating season usage by locking in your price for winter.

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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