Panning For Gold

Happy Friday!

I first would like to take a moment and wish everyone a safe Memorial Day weekend. I would also like to take a moment to remember all of our military veterans who sacrificed their lives in service to our country. Our freedom comes at a price. No matter how difficult the struggles can be in our country, we are still the best country in the world.

Crude oil prices finished the week lower than last week. The move lower was based on poor economic data, as well as sticky inflation. Existing home sales in America fell in April, even as more supply hit the market. The FED also announced that rate cuts are a ways off due to inflation levels possibly rising. Some banks, such as Goldman Sachs, have adjusted their outlook to “no rate hikes in 2024.” In fact, there is growing sentiment that a possibility of a rate increase is on the table. There were also weak economic data announcements from China as well as Europe. The potential for a global economic slowdown won over oil traders in the first three days of the week. But the last two days of the week were all bullish. OPEC+ meets on June 2nd and rumblings are forming that an extension and maybe further production cuts will be put in place to keep WTI crude oil price above $80/barrel. In geopolitical news, the war in Gaza intensified as Israel continued their offensive in Rafah. The United States and others again pleaded with Israel to provide more protections to civilians in Rafah. In a rare announcement, The International Criminal Court (ICC) issued arrest warrants for leaders from both Israel and Hamas, accusing them of war crimes and crimes against humanity linked to the ongoing conflict in Gaza. The warrants target Israeli Prime Minister Benjamin Netanyahu, Defense Minister Yoav Gallant, and Hamas leaders Yahya Sinwar, Mohammed Diab Ibrahim Al-Masri, and Ismail Haniyeh. Also, the International Court of Justice (ICJ) issued a ruling against Israel, calling for measures to prevent genocidal acts in Gaza. In other recent developments, Spain, Ireland, Norway, Malta, Belgium, and Slovenia formally announced their recognition of Palestinian statehood. This collective effort is part of a broader strategy to support a two-state solution and address the ongoing humanitarian crisis in Gaza. Israel vehemently pushed back on all of the previously stated announcements and vowed to continue their as is, regardless of Western support. The accord between the US and Saudi Arabia to put pressure on Israel seems to be dead. The King of Saudi Arabia is sick, so MBS is staying close to home and focused on family. The war in Ukraine also had some developments this week. Zelenskyy signed laws enabling prisoners to join the army and increased penalties for draft evaders. He has also called for more air defense systems and advanced fighter jets from allies to achieve air parity with Russia. Meanwhile, diplomatic tensions continued, with Russia criticizing upcoming peace talks and asserting its military actions aim to create a buffer zone​. Valerii Zaluzhnyi, the Commander-in-Chief of the Armed Forces of Ukraine, was dismissed from his position. President Zelenskyy made this decision as part of a significant military shake-up aimed at adapting Ukraine’s military strategy to current challenges and improving the effectiveness of the armed forces. In addition, Ukrainian Defense Minister Oleksiy Reznikov submitted his resignation. The move is part of broader changes in Ukraine’s defense leadership as the country continues to address the evolving dynamics of the war with Russia​. All-in-all, there seems to be no positive change in Ukraine. Russia continues to gain ground and Ukraine is running out of steam to fight back. The geopolitical tensions in Israel and Ukraine offer a sort of support-floor for crude oil price. The week finished with WTI crude prices rising. One of the largest reasons was Pres Biden announcing the release of 1M barrels of gasoline into the US supply chain in order to lower gasoline prices for summer. The move actually caused prices to rise. The announcement was clearly politically motivated and not in the interest of supporting gasoline supply. The release of refined products under an executive order sent shivers down the spines of oil traders. If a President is releasing refined barrels into the supply chain, the potential for a supply crunch due to refineries going offline is increased, not decreased. In addition, 1M barrels of gasoline is about 42M gallons of gasoline. Here’s the fact: the US consumes at lease 375M gallons of gasoline a day. Therefore, the release covers just over 10% of our gasoline consumption for one day. Clearly the move is politically motivated and not in the best interest of protecting our nation’s supply of refined fuels. The announcement continued to push prices higher through Friday as many traders are starting to believe that most people will travel by auto/truck this summer for vacation as opposed to airline travel due to high-priced airfare. The increase in gasoline/diesel consumption puts pressure on a very tight refinery market and continued record exports. If we lose any refineries throughout the summer, prices of gasoline and diesel will skyrocket. So for now, I would enjoy the lower prices at the pump. I do not see prices of gasoline dropping below $3/gallon as Biden is hoping to achieve.

In local news, the Chicago spot market seems to be well supplied with gasoline and diesel. There were a few spot hiccups this week due to possible covering of positions with the change in cycle timing. But the Chicago spot market is showing some reliance at the moment. Retail prices in our region might go down a bit compared to other parts of the US. Again, everything hangs on the continued strength of refining capacity. Any loss of refining capacity in Chicago our local prices for gasoline and diesel will take off.

Propane spot and futures pricing are starting to find support. Both prices finished higher to end the week. Although inventories are in great shape, the amount of gains per week is not hitting predictions. Therefore, again, with any production shortfalls, propane inventories could start to move sideways due to the massive amounts of exports. Next season’s heating contracts are out right now! I suggest signing up for a contract and filling your tank now. The retail price of propane is the lowest in over a year, and next season’s contract prices are lower than this past winter! Even with inflation hitting energy prices, propane contract pricing for 2024-25 is lower than 2023-24! What a great economic relief for customers!

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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