Good moring!
Happy Friday and cooler weather! Wow, was that a week of heat! As I have been writing, WTI crude oil prices continue to hold around $80/barrel. China reported less than stellar economic data again this week and crude oil prices dropped below $80/barrel for a couple days. But then recession fears in the US hit the news and the next day crude price jumped right back to $80/barrel. This week the top bank CEO’s and the FED are all meeting in Jackson Hole for the annual meeting on the analysis of the US economy. This morning, FED Chairman Powell stated that inflation is still too high and interest rates might go up a little more and hold for a longer period of time. The news sent crude prices higher, which is the opposite under normal economic conditions. Usually as the dollar gains strength, crude oil prices drop because crude oil is traded in dollars and customers can get more bang for their buck when purchasing crude. However, higher interest rates for longer have a greater chance of slowing down the US economy which lowers crude demand. Therefore, producers will cut production to increase the price rather than compete for market share. Crude producers are saying loud and clear they would rather pump less crude and make more money than collapse price and pursue market share competition strategy. I’m not too concerned about the economic issues in China since they have the power to do whatever is necessary to fix their economy. And I am still convinced that $80/barrel is the new norm for WTI Crude price. All oil companies are needing to make investments outside of oil, and $80/barrel works for all crude producers. We might see the occasional dip, but US producers will shut down rigs and Saudi Arabia will cut production to keep prices from collapsing.
In local news, diesel prices calmed down a bit. But the September futures contract expired, and just as I have been writing, the October contract shot up 15 cents per gallon. The reason is that diesel supply will be tight in Chicago during harvest. The Midwest is not going to run out of diesel, but logistics are going to be tough to manage and distributors like myself will have to chase terminals for a month or so. Gasoline prices have calmed down as summer ends. I see gasoline retail prices staying around $3.49/gal. However, diesel retail prices could jump back above $4.00/gallon and hold for the next few months.
Propane prices gained a little bit of ground this week even though the US is at record inventories. I believe exports will continue to skyrocket going into winter and Canada will use as much propane as possible for manufacturing as opposed to shipping to the US. In addition, if we have a warm winter, suppliers will keep prices high to make up for the loss in volume, which in turn will raise retail prices. As a reminder, contracts start in September and you still have time to take advantage of summer fill pricing.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford