Political Gimmicks In The World Of Gasoline Prices

Good morning!

Happy Friday!  I was off last week on vacation so I will try and get you caught up from the past two weeks.  Over the past two weeks crude oil prices have fallen but the price of gasoline and diesel continue to remain high due to VERY tight refining capacity and record exports.  China continues to look at possible lockdowns for controlling Covid.  Interest rates from the FED are going up another 75 basis points.  Economic data is not looking good in the US.  And China/India recorded record imports of Russian crude oil over the past month.  As the FED tries to tame inflation with rate hikes, the economic situation in America is starting to look different.  Home prices have reached their highest average price ever and mortgage applications are dropping.  With the increase in interest rates, people are getting priced out of the market.  But more scary, some people who are building are getting priced out of finishing their homes.  Builders are starting to lower prices on pre-built homes and refinancing is drying up.  I’m not sure we will see 2008 housing crisis levels, but there is definitely something brewing in the housing market.  Couple the housing market data with massive amounts of layoffs at large companies that were scaling up during the stock market boom, and the American economy is starting to change.  Companies remember 2008 so they are starting to prepare “as if” a major recession will happen.  People are now wanting to go back to work and surprisingly the job market is getting tighter in spots.  In other words, the balancing act of rewinding from the past two years is starting to happen.  Where we will land, no one knows.  We’ve never been in a situation where trillions of dollars was pumped into the economy for two years.  The war in Ukraine is not showing any signs of receding and the FED is very hawkish on taming inflation with the threat of recession on the table.  President Biden is focused on brining down gasoline prices, which I have stated for months means nothing to stop inflation.  He has explored giving a “federal gas tax” holiday which leaves holes in the transportation budget to fill.  He’s demanded that gas station owners lower their prices with no understanding of the cost structure.  And he has considered sending “gas cards” to all Americans which is nothing more than “buying votes” and a waste of tax payer money doing that does nothing to solve the problem in my opinion.  Without lowering the price of diesel, nothing changes.  If we can bring down diesel prices, inflation comes down, which increases the strength of the dollar, which in turn will bring down the price of gasoline.  All focus should be on the SUPPLY of diesel, not the price of gasoline.  Unfortunately, we are exporting diesel to markets in Europe and just can’t produce anymore at home.  The President wants oil companies to do more, but he has also told oil companies that their days are numbered.  Oil companies have been reinvesting record profits into solar, wind, and hydrogen projects knowing that remaining in fossil fuels will be difficult long term.  The market is showing opportunities for transition to green energy and the large oil companies will invest.  I am not a “fan” per se of “Big Oil”, but their five year averages on profits does not look crazy and they are diversifying their investments away from crude oil.  But we can’t run before we walk.  We have a long ways to go and the situation won’t change overnight.  But without bringing down the price of diesel in this country, our high inflation, including high gasoline prices, will be here to stay.

In local news, Gov Evers passed an executive order stating that gas stations will be held accountable for gouging the public with high retail prices.  Based on his order, a gas station can not sell gasoline for more than 15% profit margin over their highest price in the 60 days prior to the order.  However, the gas station can adjust based on replacement cost.  The order is ridiculous in massive magnitude.  At no point in the past two years has any gas station in the state sold gasoline for more than 15% profit margin.  In addition, our cost changes every day so enforcement is simple to see.  Gas stations do not make that much money selling gas. But their credit card costs have skyrocketed.  Gov Evers also stated that the order applies to upstream supply.  We have spoken to the companies that supply the state with gasoline and no one is willing to open their books to the government.  Therefore, if at any point, selling a gallon of gasoline to a distributor in Wisconsin would be a violation, they will just move the sale over to the Group Market and bypass Wisconsin.  The main suppliers of Wisconsin have made it clear, that they can meet their contract obligations, but any spare capacity will be moved elsewhere if violations were to be possible.  Therefore, the executive order could cause a gasoline shortage in Wisconsin.  The governor never spoke to our State Association which I am apart of, or even DATCP (the enforcement agency) before making the order.  The order is a political move, once again, trying to place blame on someone for high costs.  Gas station owners have been through hell and back the past two years, and are now dealing with a critical driver shortage and running out of gas during the high demand season of summer.  Wisconsin gas station owners did not need the extra headache at this time.

Propane prices continue to be “steady as she goes.”  The propane market is saying loud and clear that we are skipping along the bottom for prices no matter how low crude goes right now.  In order for propane prices to really drop, crude oil will need to go down almost $20/barrel and crop drying demand will need to be low in demand.  If you have not ordered a summer fill, I highly recommend topping off your tank at this time.  Next season’s contracts will be released right after 4th of July.  Look for mailings to start after the 4th, or call us after the 4th of July to lock in your pricing.

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

Best regards,

Jon Crawford

Another Record Price

Good morning everyone!

Happy Friday!  Unfortunately I do not have much more to report after the long update last week.  Gasoline retail prices have officially blown out higher and surpassed the national average of $5/gallon.  Diesel prices are once again flying higher as well due to the tightest market I’ve ever seen.  This week, our refinery utilization surpassed 95%, leaving us less than 5% spare capacity in the US.  I’ve only witnessed this tight of a market a few times and they were short lived.  Crude prices also caught fire and WTI blew through $120/barrel this week.  World demand for crude is continuing to hold steady and we just cant’ shift supply needs around fast enough.  It’s like Wack-A-Mole!  Until demand drops significantly, we are going to be stuck, and unfortunately I see higher prices on the horizon.  Major banks thought consumers had about 6-9 months of spending runway left, but now they are revising the call down to 3-6 months.  And if crude prices blow out to $150/barrel, the consumers in America will be defeated by end of summer.

Gasoline retail prices are inching ever so closer to $5/gallon in Central Wisconsin.  And my call on diesel was way off.  I really thought we had diesel under control and gasoline was going to be the rocker ship.  But diesel retail prices are inching close to $5.50/gallon in Central Wisconsin.  If there is ANY refinery issue in the Chicago Spot market, we could see $6/gallon retail diesel and over $5.50/gallon gasoline.  Wowza…

Propane continues to be a dim light of hope.  Propane is now 60% cheaper than diesel when comparing BTU’s or available energy.  Propane has incredible value compared to natural gas and diesel right now.  I highly recommend cost-averaging during these volatile times and filling your propane tank now.  We hope to have our contract pricing for next season out in the next few weeks.  The numbers are starting to settle out and I’m cautiously optimistic for propane this year.  As long as crude production stays at record levels, propane should be able to remain less volatile than it’s neighboring products.  And for now, I see NO headwinds for slowing down on crude production.  If crude demand slows in the US, there are plenty of other countries that will take our crude and refined products!  The more crude production, the more propane!

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

Best regards,

Jon Crawford