Good morning,

Happy Friday.  As I have been writing, we need to watch the price of diesel as a predictor of our economic future.  This week diesel prices continued their surge with the East Coast toping over $6/gallon at retail.  In our local markets, diesel retail is now over $5/gallon!  Crude prices have surged higher again with the EU coming ever closer to an embargo on Russian crude.  OPEC+ has voted to continue their “trickle level” of increase in monthly crude production.  Even though the FED enacted the largest rate increase in decades, crude prices continue to surge.  With the war in Ukraine not letting up, I fear we are in for a long-haul with these energy markets.  Natural gas has officially hit the highest price since 2008 and shows no signs up letting up.  Utilities will be forced to increase rates into next season, so heating costs will be much higher for consumers next winter.  The energy markets remind me of the crisis in 2014.  Although the skies are very dark right now, the coming years are looking much better.  The amount of crude oil production and refining capacity coming online in the coming 12-24 months is very robust and should not only stabilize the world market but build to surplus.  I believe we are reaching the boiling point in consumer based demand at the current retail price of energy.  If these retail prices hold for a few more months, a decrease in demand will occur and prices should start to relax.  But a true collapse in energy prices will not occur until world supply is more stable.  Hopefully we will start to see the sun poke through these storm clouds by the end of the year.

In local news, diesel retail prices shot over $5/gallon.  Gasoline retail is about to shoot over $4/gallon going into summer driving season.  If these prices hold for a significant amount of time, consumers will start to change behaviors.  And unfortunately, I’m just not sure there is anything the US can do anymore to stop these prices from surging.

Propane prices are continuing to trade in a narrow range compared to other commodities.  Production of propane is very strong and inventories are building nicely going into summer.  The big unknown is going to be corn drying demand.  With crops getting such a late start in the season, the potential for increased dryer demand is on the table.  The good news, although propane prices are higher than average right now, the cost of propane to heat is cheaper than natural gas right now.  We will be sending out contract information for next heating season in the coming months.  I’m not sure retail prices will go much lower for summer, but we should know more by the start of June.

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

Best regards,

Jon Crawford

Good morning!

Happy Friday!  Another wild week in the energy markets.  Crude prices continue to rebound higher as traders shake off demand headwinds from China and their lockdowns.  The hot potato is still the Ukraine/Russian war.  Germany is warming up to cutting off Russian crude imports.  As the oil market continues to try and balance with a disciplined OPEC+, supply disruptions from Libya and others, and the US not able to ramp up as quickly as our government wants, higher prices for crude will continue to be supported in the near term.  Russia is also demanding payment in rubles and shutting of natural gas supplies for those who don’t pay.  Some are worried the payment in rubles could spread over to crude as well.  The instability of Russia’s action with payments is increasing volatility on all commodities.  The good news is that OPEC+ is staying true to production increases the best they are able and the US is plowing ahead with adding more oil rigs.  Germany is also opening back up the North Sea for crude harvesting.  In addition, refining capacity across the globe is also expanding.  So although we are in for a nasty ride of volatility and high crude prices for 2022, I see much lower prices going into 2023 and beyond.  Even though supply is quite bullish now, we are facing some bearish sentiments on the horizon.  The value of the US Dollar is shooting higher which usually lowers energy prices because crude settled in dollars.  And some economic headwinds are forming in the US with inflation on all goods and services, potential housing crisis looming, and a labor supply problem that is not getting better.  If a recession hits the US at some point this year, crude prices will most certainly drop.

In local news, the refinery issue in Chicago came from Bp Whiting, the largest refinery east of the Rockies.  The production shutdown caused a massive spike in Chicago sport price.  Unfortunately, the Group had been struggling with supply, so a shifting of barrels was not as easy as usual.  Then, a short squeeze developed on diesel barrels as an arbitrage for the May to June contract shift developed.  The east coast diesel cost is almost $1/gallon higher than Chicago market!  Pricing diesel spot price right now is like throwing darts at a chalkboard.  And as I have been saying, if you care about the state of the economy, watch diesel prices, not gasoline.  There is still enough money in the system yet for consumers to afford these gas prices for a while.  But if diesel prices continue to climb at these current rates, prices of everything will continue to go up.  Diesel literally fuels our economy.  So until the May contract closes out and June opens next week, we are in some choppy trading waters.  I would not be surprised to see diesel retail prices in our market eclipse $5/gallon next week and gasoline retail eclipse $4/gallon.  If the arbitrage calms down on the spot market, we could see prices ease and not break through my predicted ceiling.  Once again, I hope I am wrong!  🙂

Propane prices jumped last week as the winter weather continues to drag on.  Although national supplies are starting to rebuild, the issues with the EU needing so much LNG is putting pressure on potentially increasing propane exports as well.  I get worried that the US will over-promise and deplete our much needed reserves at home.  But we still have plenty of time.  For now, I don’t expect propane to move much lower in price.  Next season’s contract pricing will probably come out in June this year.  So stay tuned for more info!  If you are a will-call customer, remember to check your tank!  This cold weather is surprising a lot of customers and causing runouts!  🙂

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

Best regards,

Jon Crawford