Crack Spreads Dropping In The United States

Good evening!

I am writing my update a day early, but I can only imagine that the trend of the week will continue tomorrow.  Not much has changed in the world this week, but some subtle news really sparked the jitters of market watchers.  The week started with crude oil prices moving higher towards $80/barrel as traders celebrated the idea of a “soft landing” into recession.  But then on Wednesday, the EIA reported a massive build of 16M barrels of crude oil in the US inventory!  And in addition, inflation is not moving lower at the pace that is truly needed for a soft landing.  Then Biden stole Vice Chairman Lael Brainard from the FED to be his chief economic advisor.  Lael is very dovish on economic policy which gives more leeway for the FED to be hawkish.  Credit card data continued to point towards the consumer running out of money, and large companies continued the layoffs.  Basically, the consumer is holding on to their spending habits by their fingernails.  The week ended with crack spreads for refiners collapsing as many believe the FED will continue to increase rates, especially now that Brainard is no longer in the FED.  And as more refiners come back online while building crude inventories build, mixed with record exports, the refining margins start to shrink.  I am still holding my position that it’s only a matter of time until the consumer takes the medicine and the economy goes into some type of recession.  How deep is up for debate.  But even a “soft landing” is still a recession which no one seems to really discuss.  For now, we cost average and keep a macro point of view.  The Russia/Ukraine conflict seems to be priced into the market and is no longer as much of a threat as it was a year ago at this time.  But hopefully we will see an end to the conflict by year end.  I know that is optimistic, but I believe it’s possible if China puts some pressure.  But now that the US and China have entered into a debate about spying on each other, I see a greater wedge forming between the US and China, just as the two countries were going to start talking.  I believe that China will be one of the hottest topics going into the next Presidential election.

Retail prices for gasoline and diesel moved all over the map.  We ended the week lower in price out of the Chicago market, so the possibility of lower retails prices are on the table for next week.  But there is still one trading day left in the week.

Propane prices went up a bit this week based on a larger than expected drawdown in inventory.  But the US propane inventory is still 40% ahead of last year.  Once the winter demand dries up, propane is probably going to sink like a rock in a lake.  No supplier wants to be long propane right now in my opinion!  As a reminder, please make sure your driveway is plowed/salted, trees hanging over the driveway are trimmed, and a clear path to your tank is possible.  All the previous actions will ensure a safe and efficient delivery, and a happy driver!

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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