Chicago To The Moon!
Good morning!
Happy Friday! WTI crude prices continue to remain above $100/barrel as the war in Ukraine rages on. Crude prices soared on OPEC+’s commitment to their production strategy and the EU ending Russian imports by year end. Libya also lost control of a major production facility to political insurgents. The loss of Libya production coupled with draws in US inventories being exported pushed WTI closer towards $110/barrel. But then Germany threw some cold water on the party saying that they are reopening a ton of oil wells in the Black Sea that will replace Russian imports by years end. Then the FED said that 50 basis point rate hikes are on the table for the out of control inflation plaguing our country’s economy. And China’s economic “reopening” is not going well at all. There are now four times as many ships sitting outside China waiting to unload and load as there were in 2020 when the the world shut down. If we thought supply chains were a mess before, hold on to your hats! I believe our supply chain issues could see the hardest times yet this summer! The end of week news pushed WTI crude back down towards $100/barrel. Although the prices for crude dropped nicely, the prices for refined products in certain spot markets did not follow accordingly.
In Chicago, a refinery maintenance issue coupled with upcoming summer demand has caused cash basis spot pricing on gasoline and diesel to skyrocket. The cost of gasoline is now almost 30 cents per gallon higher than it was a week ago, and diesel cost is now over 40 cents higher. Our market in Wisconsin, is mostly based on Chicago spot pricing along with the Group to the west. The Group was already struggling to keep supply steady, while Chicago was offering steep discounts to help move supplies. Now, the tables have flipped. Chicago spot market is now HIGHER in cost compared the Group. The flip in economics means that the retail price of gasoline and diesel is going to be much higher next week. I expect to see gasoline retail price hit or exceed $4/gallon and diesel retail prices to hit or exceed $5/gallon. Unfortunately, we have a LONG way to go before gasoline and diesel prices settle down. I am now predicting that gasoline retail will be between $3-4/gallon and diesel retail $4-5/gallon for the remainder of the year. It’s the one prediction that I hope I am wrong! 🙂
Propane prices are holding very firm on skyrocketing natural gas costs. As natural gas prices rise, companies look to propane as an alternative fuel for production. And since Canadian inventories are very low, as well as America’s inventory, the markets are going to price propane accordingly to try and keep as much on hand to help avoid a supply crisis next winter. The late season cold weather is keeping propane inventories from building into next heating season. The longer lasting cold is also pushing off the planting season for farmers which raises the probability of a later harvest. And usually a later harvest means more crop drying demand because farmers lose a month of natural drying weather during optimum crop growth maturity. For now, I do not expect to see propane prices move much lower.
As always, if you have any questions, comments, or concerns, please feel free to contact us!
Best regards,
Jon Crawford
Nice While It Lasted…
Good morning!
I would like to first wish everyone a happy Easter Weekend and safe travels! Well, it was nice while it lasted… Crude oil prices dropped to pre-invasion of Ukraine levels for one day on Monday. The continued drop in prices was fueled by the group announcement from IEA countries and the US to release 270M barrels of oil from strategic reserves, China locking down with Covid cases, and the FED raising interest rates with record inflation. And then on Tuesday, prices whipsawed higher and never returned. It was nice while it lasted… Since Tuesday, crude oil prices have gained over $10/barrel. OPEC+ announced that demand will far outstrip supplies and that they have no intention of changing course on production quota increases since the rest of the world wants to try and flood the market with reserve oil. In addition, China is starting to ease shutdowns a bit. The US inflation is seeming to peak. And the EU is planning to official ban all Russian petroleum products. Wow… what a difference a couple of days makes. Crude oil prices were FINALLY moving to what I call a manageable level. We were not out of the woods, but the price levels on Monday would have at least made a difference in the near term. Instead, WTI crude is now firmly positioned above $100/barrel and nothing seems to be working on keeping prices lower. I believe there are only two ways out of the mess were are in with high crude prices One is to have peace in Eastern Europe and that seems years away. And the other is to watch the world economy go into major recession. Unfortunately, a world economic recession seems more possible now than it did a month ago. Although inflation might be peaking in the US, that doesn’t mean inflation will go down. I could see inflation hover at these current levels for quite a long time, even with rising interest rates. At the end of the day, I don’t see a soft landing out of the world mess we are in.
In local retail news, due to the increases in crude pricing this week, gasoline cost soared over 40 cents/gallon and diesel cost well over 50 cents/gallon. I expect to see retail prices at the pump go much higher. Retail gasoline will again be approaching $4/gallon and retail diesel is going to move towards $5/gallon. President Biden made a “feel good” executive order this week allowing the sale of E15 (gasoline with 15% ethanol) during the summer months, removing the EPA vapor pressure violations. Biden claims his action will lower the price of gasoline by 10 cents/gallon at the pump saving Americans millions of dollars. His statement could not be further from the truth. There are only about 2,500 gas stations in the country that sell E15 out of about 150,000! In addition, a station just can’t put E15 into any tank and fueling system. There are strict requirements and limitations on equipment. And, E15 gets worse gas mileage than E10 or conventional gasoline, so you end up buying more fuel in the long run over the course of a year. And with corn input costs going through the roof and a decrease in overall corn acres being planted, an increase in ethanol demand will increase ethanol prices! The situation could possibly cause ethanol price to be higher than gasoline by year end! So basically, once again, the gas station OWNERS are being blamed for high gas prices while Visa/Mastercard raise their credit card fees to all gas station retailers forcing them to increase their sale price to the consumer. Gas station owners continue to face increased cost on every portion of their business, yet somehow continue to take the blame for the prices at the pump. Once again, please go easy on gas station employees. They are doing their best managing the dizzying cost increases and 50 cent/gallon cost swings on gasoline/diesel weekly.
As you might expect, with crude prices being lower on Monday, propane cost finally dropped a bit. But, just like gasoline and diesel, as crude prices roared higher throughout the week, propane prices followed in tandem. I continue to be skeptical of propane prices getting much lower this year. Just like natural gas, propane is under the microscope. If the US is going to increase supplies to Europe permanently, we need to keep production strong at home. I worry that our altruistic actions could lead to very high prices on natural gas permanently and higher than normal prices for propane. Natural gas prices are higher than propane in relation to BTU’s. So at least for those on propane, you are getting more “bang for your buck” while heating your home. We are hoping to have next season’s heating contracts out by end of May. As a reminder, if you still have contract gallons remaining on the current heating season, please call to receive those gallons. Our current heating contracts expire at the end of April.
As always, if you have any questions, comments, or concerns, please feel free to give us a call!
Best regards,
Jon Crawford