The Markets Have Spoken

Happy Friday!

Well, I don’t think I need to talk too much about the bank failures and bank runs that have occurred across the US and Europe.  I think the main media did enough non-stop coverage on those topics!  🙂  The contagion fears and misinformation being discussed by major news sources did not help this week.  There were no risky bets by Venture Capital that caused these banks to fail.  The banks made poor decisions such as investing in crypto, long term bonds, and mortgage backed securities.  The FED raising rates at an incredible pace caused these banks to be pinched, along with rates increasing in Europe.  The money pouring in from major banks as well as a FED backstop will not affect the American taxpayer.  These are not bailouts.  I believe we are doing the right action and letting the bank executives, board members, and shareholder lose their money.  Not the depositors.  The FDIC insurance of $250k is absurdly low.  I previously stated that most of this fear would blow over in a week or two, and that has already happened.  The plan in place should stop any major collapse and the big banks came to the rescue.  The fear of economic collapse caused WTI crude prices to collapse.  I have called a bottom at $65/barrel on WTI and then a catastrophic bottom at $59/barrel.  Well, even with the massive selloff, WTI could not break through the $65/barrel price.  The crude oil market is sending a message.  Energy companies must continue to make money and $65/barrel seems to be the minimum price to continue profitability in operations, investment in alternative energies, and stock buybacks.  Major oil companies need to continue to be profitable as they are investing heavily in the alternative energy space.  The majority of all major alternative energy investments are coming from oil companies around the globe.  Now, let’s take a quick step back.  Will Exxon/Mobil be held accountable like the cigarette companies for covering up their knowledge of global warming that they knew about through research 20 years ago and covered up?… Yes.  Will bank executives and shareholders who sold positions two days prior to the current collapse be forced to return money that will go to back to teh FED?… Yes.  The US government and all agencies have made it very clear that these companies will still be held liable.  The lawsuits and claw-backs will take time.  Unfortunately, just like the the Big Banks that are “too big to fail”, the major oil companies are still the fastest vehicle to implement alternative energy projects such as windmills, solar, and hydrogen across the United States and the rest of the globe.  If oil prices fall too low, American citizens and other customers around the world lose interest in alternative energy because the cost to fill up their cars and heat their homes puts more cash flow into their pockets.  The incentives must remain in order to invest in alternative energy sources, and I believe WTI crude oil must stay at or above $65/barrel to achieve our alternative energy goals.  In addition, if WTI crude prices fell below $65/barrel, I believe that American oil companies as well as OPEC would announce production cuts immediately in order to prop up price.  For the first time ever, American oil companies and OPEC are in sync with incentives.  Market share is no longer the main incentive and driver of profitability.  Pivoting into new business ventures outside of oil is driving the economic engine of all oil producing companies and nations.  Although I believe solar will be the major alternative energy producer for electricity, I am very long on liquid hydrogen in the auto and heavy duty trucking industry.  I believe liquid hydrogen will be much easier to scale and maintain than electric vehicles due to the reliability/availability of rare earth metals and a supply chain that is so difficult to manage worldwide.  Liquid hydrogen can be produced locally in each country and the retooling of factories to pivot towards liquid hydrogen is much easier than electric vehicles.  Lastly, I do believe we are skipping along the bottom of crude oil prices and there are some value hedging opportunities.

In local news, Chicago spot prices were all over the map.  After seeing some market price erosion, gasoline prices firmed up due to the continuing change to summer RVP spec.  Diesel prices fell but ended the week firming up as crack-spreads shook off the price collapse in crude oil prices and traded higher.  I don’t expect to see too many changes on retail prices due to the whipsaw market moves.

Propane spot prices continue their steady trend, and future prices did not fall as much as expected due to the current massive value of propane price compared to crude price.  We are well below the historical average.  Therefore, I believe that future prices of propane will not move much, even if WTI crude oil price stays around $60-65/barrel.  However, because of large levels of propane inventory in our national storage due to a dud of a winter, I believe suppliers will be aggressive on getting rid of propane this summer to make room for the winter storage based on future allocations.  Therefore, I could see the scenario where summer fills are 10-15 cents, maybe even 20 cents/gal, cheaper than the contract price for propane heating season in 2023-2024.  However, next year’s heating contracts will be cheaper than this year which is incredible in a time of high inflation.

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

Best regards,

Jon Crawford

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