Speculation Is Driving The Bus

Good morning!

Happy cold Friday!  WTI crude oil prices pushed up through $80/barrel briefly today before retreating on a terrible December jobs report.  There is a push/pull relationship going on in the crude oil trade right now.  The facts are that the FED is going to raise interest rates, OPEC+ is continuing on path to increase production, the US is going to increase oil production, Omicron is causing a ton of uncertainty, and Libya is facing some hurdles with pipelines being shut down.  On the speculation side of the trade, many are believing that inflation is going to still outpace any increase in interest rates in 2022.  Others believe that the push to “green” energy is forcing oil companies to raise prices as they diminish investments in crude exploration.  And even more traders are believing there is going to be a supply shock to the system in 2022.  I have watched many economic scenarios play out since the Great Recession.  Although I have never watched a world pandemic play out, many of the pieces are still the same.  The trade on crude oil is being caught up in news headlines and heavy speculation based on long-term bet positioning.  I am not betting on $100 WTI crude prices, especially in a key election year.  I believe that many oil companies have slashed “exploration budgets” because they were over-levered to begin with.  Developing deep-water wells is much more expensive and dangerous than maximizing crude oil harvesting on land.  I also don’t believe that jet fuel consumption is ever going back to pre-pandemic levels.  World business has forever changed.  Companies are experiencing the savings of not needing everything to be in person all the time.  Travel for work is never going to be at the same level.  I also know that many in OPEC invested billions in crude exporting equipment and will need a return on investment.  I see too many hands trying to get in the cookie car by mid-year 2022.  I think the “hype” of the trade will keep prices higher in Q1 and Q2.  But I think crude prices are ripe for a correction going into the second half of the year.  Even if Omicron becomes that last major variant in the pandemic, I don’t see where demand is going to outstrip supply that is coming online throughout the year.  Patience and cooler heads are going to win this year on the crude oil trade.

In local news, retail prices for gasoline and diesel are slowing climbing higher again.  I expect to see these prices hold and possibly go higher in the coming week.  Also, with the extreme cold, many stations have blended their diesel fuel with more winter components so I expect retail diesel prices to move higher.

Propane prices have leveled off as we move into the heart of winter.  Although demand will skyrocket back in the coming weeks, supplies are in better shape.  However, any Polar Vortex lasting longer than five days will strain the system and push prices higher faster.  For now, please make sure to keep an eye on your tank if you are a will-call customer and call in at a minimum of 25%.  We are very busy and we want to make sure we can efficiently and safely take care of all our customers.

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

Best regards,

Jon Crawford

HERE’S TO 2022!!!

Good morning!

I wanted to take a quick moment and thank everyone again for their support through a difficult year in 2021.  I am optimistic for 2022 and hopefully you are too!  Although crude oil prices are ending the year at almost all-time highs for 2021, I am seeing headwinds on the horizon.  I do not believe we will be at these prices come this time next year.  The US is locked-and-loaded to increase production right out of the gate starting in 2022.  There are economic headwinds starting the year in China.  And OPEC’s relationship with Russia will be put to the test as Russia flexes its’ muscle on the geopolitical world stage.  Overall, demand for jet fuel will increase, but demand for crude has been steady.  Consumers had plenty of money in their pockets to keep the demand train moving forward the past year.  As COVID-19 becomes less dominant in the news, the amount of demand increase will not be the shock that many are predicting.  The only increase could be in jet fuel, but even jet fuel will not bounce back to pre-COVID times as many businesses have permanently pivoted to more efficient models of operation.  As propane continues to be a highly exported commodity in the US, unless crude prices tumble below $50/barrel, I don’t see propane retail prices going under $1/gallon anytime soon.  Propane price as a percentage to crude will probably continue to operate in average to higher-than-average ranges until production starts to really overtake exports again.  So until then, propane retail prices will probably remain in the 10-15 year averages of over $1/gal but under $2/gal.  Although we all enjoy propane prices under $1/gal, the averages predicted are still good value in today’s economy.

But just as COVID-19 was unpredictable, commodity prices are nearly impossible to predict.  My 20k foot prediction for commodity prices in 2022 is based on as much current information and historical data I can synthesize.  Regardless of what crude prices do in 2022, I hope that COVID-19 moves toward the rearview mirror and we start to look forward to more peace and calm in our daily lives.

Thank you again for your business in 2021 and we look forward to providing you with more guidance and great customer service in 2022.  Happy New Year!

Best regards,

Jon Crawford