Good morning!
Happy Friday! WTI prices tumbled this week even as OPEC+ announced they will keep current production cuts in place. China announced that they will loosen many of their Covid curbs, but the markets are not looking at the polices as super positive. Markets believe the opening up with cause a massive wave and add another headwind to the China economy. China economic data is already looking bleak and the opening up is not necessarily going to change the trajectory of the economy. The world is very cautious on China right now. The United States built a massive amount of refined product inventory this week. The EIA report showed that the economy is starting to cool and diesel supplies are in better shape in December than November, just like I predicted. The “diesel shortage” was a pure political play. Most major banks are calling for a recession in 2023. Some are calling for three straight quarters of decline with Q4 2023 as the start of a rebound. For now, WTI has given up most of its’ gains for the year. If WTI falls below $69/barrel, I would expect futures purchasing to pick up, including the US Government buying some Strategic Reserve Oil.
In local markets, gasoline and diesel prices plummeted for almost two weeks straight before firming up hard yesterday. The increase in cost yesterday came on the heels of 14k barrel spill of crude oil from the Keystone pipeline in Kansas. The spill is one of the largest on US Oil soil in years. The spill will affect East of Rockies refined production for about two weeks. The news caused gasoline and diesel prices to rise. But the trend on gasoline and diesel has been a sharp decline. We were experiencing what we call the “falling knife” scenario. Prices were falling faster than demand could keep up. I expect to see retail prices balance out next week. We are currently experiencing some of the lowest retail prices since the start of the Ukraine war in February. Remember, as you see diesel retail price spreads on price signs, the cost of winter treatment is 20-30 cents/gallon. So I wouldn’t be surprised to see some prices that far apart. If you are buying diesel, always remember to ask what blend the seller is using. I do not believe you can safely operate into single digits or below zero without blending in #1 ULSD.
Propane continues to baffle us. Although there was a draw on inventories this week, propane inventories are looking to be healthy for winter. Again, propane threw a head-fake just like last year. We headed into summer and continued through the first half of summer with dangerously low inventories, only to build back to healthy levels during cold months. The trend has been very difficult to manage and predict. We never want our customers to be left holding the bag. I still believe that propane prices will start to trend higher once the demand kicks in towards end of December. I am predicting a difficult January and February. As the snow starts to fall, please remember to have your driveways cleared and an available path to your propane tank to ensure a safe and efficient delivery.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford