Good morning!
Happy Friday! A lot of information was released this week. And by information, I mean numbers. Numbers seem to be the name of the game: number of people being let go from companies, numbers on earnings reports, numbers of oil rigs active, number of people tightening on spending, number of tanks being sent to Ukraine, number of propane barrels in storage, number of people looking for jobs, number of people being hired, number of people in China traveling and going back to work, etc. At the end of the day, there is a huge argument being made whether or not the US will go into major recession or land softly. What’s interesting about each argument, is that both agree on recession, just a difference in how bad the recession will be. Well, let’s take a look at a little more of the data. Housing market value is showing signs of weakness as consumers tighten up their spending. Therefore, if push comes to shove and people need cash, because they overpaid for their homes, they might be upside down on their mortgage and unable to obtain cash. And even if someone was able to take a HELOC out on their home, the interest rates will be probably 7%+. Another interesting fact is that the US has hit the largest amount of credit card debt in history and the average credit card payment is being paid at 19% interest! The stat is saying for example, those who pay their credit card bill each month with no interest are the low end, and the high end could be near 29%. So out of the entire United States, the average consumer is paying 19% on their credit card debt! Even at our office, consumers are starting to pay for their fuel on two credit cards. The situation is probably the most telling of where we are heading. Consumers have been continuing to try and live as they did during Covid times with cash flowing in and employees holding the power over businesses. But as most trends go, situations change. Most major companies, including small businesses have gone through attrition of 5%-40% of their workforce! Many of these workers that were let go are going into the service industry that has continued to be healthy, but will start to diminish as consumers tighten. And in addition, inflation continues to affect food prices. And some of these employees that were let go might try and start their own business eventually which will bring the economy out of recession in the coming couple of years, but that takes time. Now, where does all this data lead to for crude prices? Well, the most deep ocean drilling rigs have been put to work over the past six months in almost ten years. Norway is at full steam ahead in production. America is full steam ahead in production (still lacking in refining, but that will get better), and OPEC+ is starting to get annoyed with Russia and their taking of market share in India. So the price of crude should relax in the first half of this year, and might recover if economies around the globe start to bottom out and stabilize. As I have been writing, I believe the numbers for inflation are going to finally be accepted that they are really showing the areas of true consumer spend are still going up, and the goods that are decreasing in price are mostly being used by companies that are going through attrition. I don’t believe we will start to dig out of the hole that forms in 2023 until first part of 2025. We will have a presidential election in 2024 where the economy will be front and center. I think next year is going to be very telling on where America heads for the second half of this decade.
Local retail prices on gasoline continue to hover around the $3.00/gallon and diesel retail prices are around $4.25/gallon. As the deep freeze comes next week, it’s very important for anyone purchasing diesel to make sure that you are purchasing diesel blended with #1 diesel. Regular diesel with winter additive only will not make it through some of the days next week. I understand that blended fuel with #1 costs more, but I believe that fully blended diesel is needed. Please make sure to speak with your local supplier or gas station on what type of winter diesel they are selling.
Propane continues to surprise everyone. Exports remain at record highs, demand is at the same levels of last year, yet production continues to be incredible. The country is now sitting on 30-40% more propane this year compared to last year. Although rack pricing is cheaper than contract pricing this year, when you look at the ten year average, those who have contracted propane for their heating needs are still ahead. I’m expecting propane prices to just fall off a cliff starting in April/May. I believe that next year’s heating cost will be lower than this year. As a reminder, please make sure to keep your driveways clear of snow/ice, trim any branches that are blocking the driveway, and have a clear path to your propane tank. These actions will ensure a safe and efficient delivery of propane during the busy season.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford