Good morning!
Happy Friday! I hope this message finds you all well. Unfortunately, there is not much to report this week with crude prices. The WTI trade moved between $80-82/barrel this entire week. There was not enough news to really move the needle. OPEC released their March data showing that production only dropped a small amount compared to quotas and the drop was from Iraq who had export issues in March. Even though the cuts in production from OPEC seem to be in place and holding, oil markets are not quite letting the bulls into the arena. Even though OPEC also reported record imports from China, the forecast for summer demand was very bleak at almost a 3% drop in world demand compared to last year. Therefore the proposed cuts last month would be more in line with the marketplace if the demand erosion does occur. So for now, traders are in a “wait and see” mode. Placing a bet is VERY difficult right now. In addition, there were no surprises on the EIA inventory report. Gasoline prices continue to rise as refiners are producing more diesel to export. Basically gasoline is in an old fashioned supply/demand economic scenario. If demand picks up, supply will be tight, so refiners are keeping margins higher right now to be safe. Inflation data cooled to 5% year-over-year, so the stock market took off higher, but crude oil prices held. Most traders are split on whether the move down on inflation is still enough to stop the FED from raising rates at the next meeting. Many banks are starting to call for recession in the second half of the year. Even in recession, the strength of the dollar has dropped almost 10% from it’s peak six months ago, which is now supporting higher oil prices. So if recession and a stronger dollar returns, we might experience an inverse relationship in the US. Crude oil prices could fall, but gasoline and diesel prices will remain higher based on local production vs export production. We have seen the Group spot price on diesel jump dramatically this week as farmers hit the fields. In our market, based on the Chicago Mercantile Exchange, we are watching to see if there will be a familiar move in spot pricing jumping higher when planting starts in the Eastern Midwest. Only time will tell.
In local news, I do not expect to see much change in gasoline prices. Gasoline spot prices are more in a holding pattern. So I would predict by the end of the weekend most retail markets will be at a stable market price. Diesel prices have continued to climb all week, so I expect to see retail prices at the pump continue to rise into next week. I am predicting a short-term blow out in diesel prices at some point in end of April or May as farmers start to plant for the season. The level of increase will depend on how fast the harvest goes. If almost all farmers start planting at the same time, prices will jump much higher compared to a steady spread of planting. The weather will affect the speed of the planting. Again, only time will tell.
Propane prices continue to trend higher, however lower in price compared to last year. I truly believe that refiners have carved out a floor for propane prices on next season’s contracts. There is just a price that producers can’t sell below and make the necessary capital investments needed for production and exportation. I do think we will see some better summer fill pricing, but like I have been saying, this is a year where there could be a larger spread between summer fill spot pricing and next season’s heating contract. The good news, is that the market is showing that next season’s contracts will probably be lower in price compared to last year. Imagine that! Customers might have a lower cost of heating with propane compared to the cost of everything else going up. 🙂
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards.
Jon Crawford – Pres.