Demand Destruction and the Strong Dollar Winning the Battle in the Marketplace

Good morning!

Happy Friday!  Well, after a week of digesting record proposed cuts by OPEC+, WTI crude prices have settled back below $90/barrel and heading towards $85/barrel.  The meltdown in the UK is giving further support to the US Dollar.  And in the United States, inflation continues to run hot which supports further aggressive FED rate hikes.  These rate hikes in turn give strength to the Dollar, which lowers crude prices because crude is traded based on the Dollar.  In addition to inflation data, the US seems to be continuing it’s trend towards recession.  Consumer spending is starting to show cracks and major retailers are trying to liquidate bloated inventories due to dropping demand.  In addition, crude oil inventories in the US experienced a massive build as well as gasoline inventories.  However, diesel inventories continue to drop on demand for the harvest and lower refining capacity.  I expect to see diesel prices continue to trade at major premiums through all of next year due to nationwide refining constraints.  The war in the Ukraine as well as OPEC+ production cuts have lost the battle this week for the eyes and ears of the markets.  But the volatility does not look to be going away anytime soon, so we’ll see who wins the eyes and ears of the markets next week!

In local markets, the bloated differentials on gasoline have subsided.  Therefore, I expect to see gasoline retail prices remain under $4/gallon.  Diesel price spreads have not changed much due to high diesel demand for harvest and continued refining constraints.  I could see diesel retail prices holding above $5/gallon next week.

Propane continues to show nice inventory builds.  We now have a decent supply going into winter.  However, that does not cover us for major Polar Vortex events or a prolonged winter.  But we are in better shape than last year.  Prices are moving around a little bit, but not much changing at retail due to such a value spread between propane price and crude oil price.  Basically, at first demand for propane, prices could jump by 10-15%.  For now, I highly recommend taking advantage of these lower prices holding into winter.

As always, if you have any question, comments, or concerns, please feel free to give us a call.

Best regards,

Jon Crawford

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