Good morning!

Happy Friday!  WTI prices tumbled this week even as OPEC+ announced they will keep current production cuts in place.  China announced that they will loosen many of their Covid curbs, but the markets are not looking at the polices as super positive.  Markets believe the opening up with cause a massive wave and add another headwind to the China economy.  China economic data is already looking bleak and the opening up is not necessarily going to change the trajectory of the economy.  The world is very cautious on China right now.  The United States built a massive amount of refined product inventory this week.  The EIA report showed that the economy is starting to cool and diesel supplies are in better shape in December than November, just like I predicted.  The “diesel shortage” was a pure political play.  Most major banks are calling for a recession in 2023.  Some are calling for three straight quarters of decline with Q4 2023 as the start of a rebound.  For now, WTI has given up most of its’ gains for the year.  If WTI falls below $69/barrel, I would expect futures purchasing to pick up, including the US Government buying some Strategic Reserve Oil.

In local markets, gasoline and diesel prices plummeted for almost two weeks straight before firming up hard yesterday.  The increase in cost yesterday came on the heels of 14k barrel spill of crude oil from the Keystone pipeline in Kansas.  The spill is one of the largest on US Oil soil in years.  The spill will affect East of Rockies refined production for about two weeks.  The news caused gasoline and diesel prices to rise. But the trend on gasoline and diesel has been a sharp decline.  We were experiencing what we call the “falling knife” scenario.  Prices were falling faster than demand could keep up.  I expect to see retail prices balance out next week.  We are currently experiencing some of the lowest retail prices since the start of the Ukraine war in February.  Remember, as you see diesel retail price spreads on price signs, the cost of winter treatment is 20-30 cents/gallon.  So I wouldn’t be surprised to see some prices that far apart.  If you are buying diesel, always remember to ask what blend the seller is using.  I do not believe you can safely operate into single digits or below zero without blending in #1 ULSD.

Propane continues to baffle us.  Although there was a draw on inventories this week, propane inventories are looking to be healthy for winter.  Again, propane threw a head-fake just like last year.  We headed into summer and continued through the first half of summer with dangerously low inventories, only to build back to healthy levels during cold months.  The trend has been very difficult to manage and predict.  We never want our customers to be left holding the bag.  I still believe that propane prices will start to trend higher once the demand kicks in towards end of December.  I am predicting a difficult January and February.  As the snow starts to fall, please remember to have your driveways cleared and an available path to your propane tank to ensure a safe and efficient delivery.

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

Best regards,

Jon Crawford

Greetings!

Winter has finally arrived in Wisconsin!  December is looking to be colder than last year with more snow and January is looking to be colder than normal.  And February could treat us to some nice Polar Vortex action.  But that’s a long ways off and we want to think about the holidays and fun stuff!  🙂  In addition to “fun stuff”, the G7 passed an initial resolution today to cap Russian imports at $60/barrel which is much lower than the current Brent price of around $86/barrel.  At first blush, the announcement looks scary and bound to cause retaliation from Russia such as cutting off oil  exports.  However, the announcement is more of a “nothing-burger” and face-saving.  Russian crude actually trades at a lower rate to Brent.  Russian crude is currently priced around $48/barrel.  So there is plenty of upside for Russia at the proposed cap of $60/barrel.  Basically, there is no Russian crude being sold above $60/barrel right now and when reading the tea leaves of the world economy, the chances of the cap being enforced is fairly slim.  In addition, Russia already announced that they would work with everyone if the cap is realistic.  And $60/barrel is a realistic number.  So for now, enjoy the news and watching everyone talk about about the G7 is gonna “stick it to Russia”, when in fact, the cap is a “nothing-burger” in my opinion.  In the US, WTI crude prices rose again above $80/barrel, but supply of gasoline and diesel are in better shape causing a spot market price collapse.  Therefore, future contract pricing finally moved into contango from backwardation allowing suppliers to possibly store extra product for future delivery.

In local news, gasoline and diesel prices completely collapsed post harvest in America.  Gasoline retail price is nearing $2.99/gallon.  But diesel retail prices are all over the map with spreads as much as $1.00/gallon.  There is a reason for these spreads.  As we go into winter, many suppliers like myself, try to offer the best blended product to meet the everchanging and hard to predict winter weather.  In preparation, many suppliers blend their diesel with additives and #1 ULSD to help with maintaining optimum operation of vehicles in cold weather.  The usual spread in price between #2 ULSD and #1 ULSD is around 60 cents per gallon.  The spread right now is $1.25/gallon!  Therefore, an optimal blend of 70/30 or 80/20 with #1 ULSD now costs between 25-40 cents/gal more!  So always make sure if you are buying diesel in the winter to check what the blend is at the supply point.  Some retail stations do not blend properly and can cause issues when temperatures get close to zero degrees and below overnight.

Propane prices continue to hold steady with healthy builds in inventory.  However, with the cold weather coming and petrochemical demand possibly increasing, propane prices are primed in a moments notice to jump 30-50cents/gal.  Although board price is cheaper than contract price right now, we have five months of winter left to go.  I expect propane prices to really pop in January and February.

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

Best regards,

Jon Crawford

Good morning!

I just wanted to take a moment and wish everyone safe travels and a Happy Thanksgiving!  Going into the holiday weekend, prices have dropped dramatically.  OPEC is looking to pump more product to offset Russian product bans in Europe.  China is continuing to struggle with economic slowdown.  The US is also reporting continued economic challenges.  And harvest is close to complete in the US.  The combination of all events caused WTI crude price to drop below $80/barrel.  In addition, spot market prices on gasoline and diesel collapsed.  Propane continues to hold strong at high value price in relationship to crude prices.

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

Best regards,

Jon Crawford

Good morning!

Happy Friday!  The US Midterm elections are finally over.  TV watching and web browsing can finally go back to normal.  Although all the results will not be known for a bit, it looks like we will have a Congress divided.  The markets this week went bonkers on a slight decrease in CPI.  Many are starting to believe that peak inflation is behind us.  But I feel it’s still too early to wave the victory flag.  Russia also retreated from Kherson and Ukraine is starting to show signs that they might consider exploring peace agreements.  In addition to the US, countries are starting to put a little pressure trying to end the war.  China threw two head-fakes this week.  Starting the week, China pivoted back to no-Covid policy and shut down factories and other areas of the country.  Then today, China decided to lower quarantine times for exposures as well as travelers.  The flip-flop decisions from China on Covid are causing waves through the energy markets.  WTI crude price is looking to close below $90/barrel for the week.  Although WTI dropped below $85/barrel briefly, prices look to close at about the same price as last week.  Holiday season will be interesting.  Many consumers are saying they are going to spend less on stuff and purchase just a few nice items for the holidays.  Instead, consumers will focus on experiences and travel.  The shift in potential spending habits of consumers will cause ripple effects through the energy markets.  I have never experienced such a fast changing landscape in the energy sector!

In local retail news, diesel cost in the Chicago market is inflated by about 50 cents per gallon due to strong demand with harvest and tight supplies.  Once harvest is completed in the coming weeks, I expect to see diesel cost plummet in our market.  I can see diesel retail prices much lower going into December.  Gasoline cost has fallen off a cliff and I expect to see gasoline retail prices continue the downward trend next week.

Propane supplies are healthy but demand is finally on the way!  Extended forecast is showing not one day over 50 degrees from here on out through the end of the year!  Colder than normal temps and lots of snow are being predicted in December.  Propane prices can jump higher on a moments notice due to the current arbitrage in value to crude.  As a reminder going into winter, please call us when you no lower than 25% and keep your driveway plowed along with a clear path to your tank.  Winter is starting to show up!

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

Best regards,

Jon Crawford

Happy Friday!

I have decided to write an update based on the enormous amount of phone calls inquiring about the diesel shortage.  I was shocked to learn how widespread the news has run with the story.  Whenever there is a contagion in the market or news cycle, I tend to pause and take a 20k foot view.  I have spent all week reading and speaking with my network.  Some of the greatest analysists agree with my conclusions.  Diesel will be tight until Russian products flow freely.

Is there a true shortage right now?  No.  We need 4.1M barrels per day of diesel and we are producing well over 5M barrels per day.  We are exporting a lot right now but leaving enough at home.  Some news anchors continue to beat the drums that there are less than 20 days of diesel supply remaining.  This is just not true.  On average, we only have 30-40 days of diesel supply on hand.  Currently, we have 20 days of diesel remaining if all 100+ refineries across the United States shut down at the same time for 20 days, and all imports from Canada and others stopped.  What we don’t have right now is a lot of SPARE capacity.  All barrels coming out of a refinery are being sold immediately in the spot market or being exported.  The futures market is heavily backwardated based on current cash spot market.  The reason the spot cash market is so high is because PADD1 (New York Harbor) relies heavily on the Colonial Pipeline and the Products Pipeline (formerly Plantation Pipeline), as well as imports from Europe, Saudi Arabia, and Russia.  In order to incentivize PADD2 and PADD3 refineries to ship diesel to PADD1, the price must be high enough compared to export.  Starting in November, diesel supplies are finally flowing to PADD1 via pipeline and barge.  Shipments look to be steady for the month.  Prices will continue stay high, buy supply will be ok.

Now lets talk solution.  Many news anchors are calling for banning exports.  Well, this would solve the diesel tightness problem, but the price would probably go to $6-7/gallon on diesel.  See, if we stop exporting to Europe and Latin America, then their markets go into true shortage causing massive price spikes in the market.  Diesel is still based off of the NYMEX which is traded globally, and local refiners are not going to sell diesel at $3 in America versus losing out on $7 exports.  So they will charge the higher price at home.  Therefore, banning exports will solve the tightness problem, but would be an economic disaster domestically.

Another solution some are saying is to build more refineries and reopen the old ones. Well, there has not been a new refinery built in over 50 years I believe.  Plus the cost is astronomical and the time frame to complete is probably ten years.  In other words, even if the anticipated 10 year process to obtain a permit were completed, completion of the refinery would be finished 10 years from now; not exactly a realistic solution.  Well, the good news is that there are about four major refiners that either down due to maintenance or accidents.  All of these refiners will be back online between the coming weeks and Q2 of 2023.  Once those refineries are on line, we might start to climb ever so slightly into a small long diesel scenario.  And if we truly start to go into demand recession, diesel inventories will also start to slowly build.

But let’s talk about the major elephant in the room:  Ukraine/Russia war.  Russia exports diesel as well as crude oil.   I want to continue to push home that we truly don’t have a global crude oil problem.  Much of the “tightness” in the crude market is due to OPEC+ enacting cuts, and Europe/US banning Russian imports.  Russia is pushing so hard to keep prices high because they know they will be selling less product.  Russia was finding good homes for products, but it’s getting harder as economies start to slow down.  If Russia really wanted to play hard ball, they could cut production even further causing a disaster scenario in crude shortness, but also putting Saudi Arabia in a tough spot to see if they would increase to counter.   Regardless, Russia is a well developed player in the crude oil market and we need to figure out a way for peace.  Yes, Putin is a monster and his actions are deplorable.  But in the same breath, when you really dig into the details of the conflict development over the past twenty years, you start to understand where we are today.  There must be blueprint for peace, but according to Ukraine last week, they will not negotiate or compromise on anything until all of Ukraine, including Crimea is back under control of Ukraine.  I am starting to believe that we should be discussing a peace plan with Ukraine in order to keep funding military support.  We can’t afford to be in a never-ending proxy war, and the stakes with energy and Russia have never been more vital for economic recovery and stability coming out of the cool-down from the post “free money and zero interest rates” period.  If Ukraine has no desire for work towards a resolution or treaty, I struggle to see a long-term way out of our current global energy supply crunch.

In local news, prices of gasoline went up 80 cents per gallon in 5 day, and then started to fall of a cliff.  The retail prices of gasoline at gas stations are going to be all over the place.  Diesel prices went up 40 cents in the past week, so retail diesel prices will start to climb above $5/gallon again.

Propane prices are continuing their stable march forward.  Supplies are in great shape and corn drying demand is winding down by then end of the month.  But once heating demand kicks in and if we start to experience colder than normal time periods, look out.  November is looking to be way above normal, but December is looking much colder.  January is looking colder than normal, and February is looking to be brutally cold.  The projected winter forecast has happened before.  In the past when this happened, everyone enjoyed cheaper than normal propane prices going into Christmas, but then prices screamed higher all the way until April.  Only time will tell, but if the weather predictions are accurate, I expect more propane usage this year and demand going through April just like the last three years.

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

Best regards,

Jon Crawford

Good morning!

Crude prices experienced a bit of a seesaw ride this week but are looking to close a bit lower for the week.  The continued saga between supply/demand and which news headlines grips the markets played out again this week.  The UK continued its’ absolute economic mess with PM Truss resigning this week.  The UK has a long way to go to dig themselves out of a hole that was created in only six weeks.  The earnings reports this week were not stellar and many FED members called for rate hikes much higher than 4.75%.  Jeff Bezos made a post this week that it’s time to batten down the hatches.  Xi Jinping in China gave his speech to the CCP Congress this week and addressed his vision.  Many believe the vision includes the forceful unification of Taiwan.  However, there was movement to possibly loosen Covid quarantines for visitors prompting many to believe China wants to reopen to the world.  Although an “open China” would give strength to crude oil demand, the breadth of Pres Biden’s chip export ban is starting to become realized.  China will be crippled along with many other countries since TSMC and others can not fulfill the chip demand of the world.  The results could be devastating on world economic growth, hence cutting crude oil demand.  Although the US is building FABS, we will not have the capacity online in time to brunt the pain of the China chip export ban.  Many believe Biden’s act is a provocation to China, placing us now in conflict with both China and Russia.  With midterms coming, many are starting to grow tired of the Russian conflict and are wanting the US to force a path to resolution between Ukraine and Russia.  As the FED continues to raise interest rates, we will not be able to afford continued economic support in Ukraine and support our growing FAB infrastructure.  As a distraction to the main global conflicts on hand causing economic headwinds, Pres Biden announced another strategic reserve release of 15M barrels of  oil to counter the OPEC+ production cuts.  Although crude prices retreated on the news, I believe that poor economic data and world conflict news were the true causes of the price retreat.  Crude oil supply is only part of the issue.  Refining capacity is the larger issue at hand.  More crude oil in the market does not make more gasoline and diesel.  We are still experiencing decreases in national inventories of crude oil, gasoline, and diesel even though our rig counts and production levels are back to pre-pandemic level.  In addition, Pres Biden announced again that he would fill the strategic reserves at $80/barrel.  I completely disagree with the strategy.  If we truly fall into economic recession, the possibility of crude oil prices falling below $80 is very, very real.  Then the US is sitting on a ton of high-priced crude.  Also, when the US buys crude for the reserves, it takes the crude oil supplies off the tightly supplied market and causes prices to increase.  I believe that the government should focus on economic conditions at home and ending the conflict in Russia.  The government is not in the businesses of trading crude oil.  I am very concerned that the amount of government interference in the crude oil marketplace, coupled with decreasing reserves, is placing us in a dangerous and vulnerable position.

In local news, gasoline prices in the Chicago market finally eased from their insane differential spreads to our neighboring markets.  Diesel prices are also starting to fall due to economic headwinds and the harvest demand on the downslope.  I do believe that Pres Biden made moves the past week to try and lower prices prior to midterms.  The moves have been used by many previous presidents in the past. However, this time it’s dangerous with how tight our market is at home and abroad.  I do believe that you will see OPEC+ respond accordingly in November, and unfortunately OPEC+ has a lot more room to cut production than we have strategic reserves at home.  The US government needs to treat lightly going into the end of the year.

Propane prices have found support due to colder than normal weather, as well as a colder than normal forecast for the winter.  Although supplies are in good shape, the percentage value of propane price to crude oil price will start to narrow as demand kicks in.   I am more optimistic on propane supplies for the winter, but I am still pessimistic that these lower prices will not hold into December and January.  Unless crude oil prices completely collapse, propane prices are primed to go higher.

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!  Well, after a week of digesting record proposed cuts by OPEC+, WTI crude prices have settled back below $90/barrel and heading towards $85/barrel.  The meltdown in the UK is giving further support to the US Dollar.  And in the United States, inflation continues to run hot which supports further aggressive FED rate hikes.  These rate hikes in turn give strength to the Dollar, which lowers crude prices because crude is traded based on the Dollar.  In addition to inflation data, the US seems to be continuing it’s trend towards recession.  Consumer spending is starting to show cracks and major retailers are trying to liquidate bloated inventories due to dropping demand.  In addition, crude oil inventories in the US experienced a massive build as well as gasoline inventories.  However, diesel inventories continue to drop on demand for the harvest and lower refining capacity.  I expect to see diesel prices continue to trade at major premiums through all of next year due to nationwide refining constraints.  The war in the Ukraine as well as OPEC+ production cuts have lost the battle this week for the eyes and ears of the markets.  But the volatility does not look to be going away anytime soon, so we’ll see who wins the eyes and ears of the markets next week!

In local markets, the bloated differentials on gasoline have subsided.  Therefore, I expect to see gasoline retail prices remain under $4/gallon.  Diesel price spreads have not changed much due to high diesel demand for harvest and continued refining constraints.  I could see diesel retail prices holding above $5/gallon next week.

Propane continues to show nice inventory builds.  We now have a decent supply going into winter.  However, that does not cover us for major Polar Vortex events or a prolonged winter.  But we are in better shape than last year.  Prices are moving around a little bit, but not much changing at retail due to such a value spread between propane price and crude oil price.  Basically, at first demand for propane, prices could jump by 10-15%.  For now, I highly recommend taking advantage of these lower prices holding into winter.

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

Best regards,

Jon Crawford

Happy start to October!

Well, this week has been absolutely ugly for the crude oil markets.  On October 5th, OPEC+ met in person for the first time since 2020.  Everyone knew that the meeting was going to be important because OPEC+ wanted all ministers to vote in person for a more personal and intense negotiation.  Crude oil prices started out the week trading much higher based on announcements prior to the meeting of a 1M barrel per day cut to crude oil production.  Saudi Arabia and Russia were going to bare the brunt of the cuts.  Both countries were signaling that the United States’ involvement with the war in Ukraine, raising FED rates to strengthen the dollar, as well as weaponizing the Strategic Petroleum Reserves were not going to be tolerated anymore.  Biden and his crew worked tirelessly behind the scenes with Saudi Arabia and others to try and lower the amount of the proposed cut.  Saudi Arabia has been a long-time but difficult ally of the United States and Europe, so many believed that Saudi Arabia’s actions could draw a line in the sand on the future of the relationship between the countries.  Well, Wednesday turned out to be a double-whammy.  Not only did Saudi Arabia side with Russia to cut production, but they surprised the markets with a 2M barrel per day cut to crude oil production!  Then a few hours later, the EIA released their United States inventory report showing major drawdowns in gasoline and diesel inventories, as well crude oil inventories.  The surprise from OPEC+ and the inventory report shot WTI prices close to $90/barrel.  WTI is now going to be locked in a range of about $85-95/barrel for the foreseeable future.  Biden announced a 10M barrel Strategic Reserve release, but the actions didn’t and won’t move the needle.  The markets know that our reserves are below 50% and we don’t have the spare capacity to be playing with our reserves anymore.  But there is a proposed law called NOPEC that is floating around Congress.  The bill would name OPEC as a price fixing cartel and sue countries, particularly Saudi Arabia, for damages caused by their market manipulating actions.  In the past, the bill was tabled because we needed Saudi Arabia.  In fact, we allowed Saudi Aramco to invest in the US equities markets, real estate, etc.  If NOPEC was passed, the government might be able to sue Saudi Arabia and seek damages by seizing all their assets in the American markets, which could devastate Saudi Arabia’s long-term plans of diversification from oil.  I believe there is a consensus growing in the US that Saudi Arabia sided with Russia and is no longer our ally.  So we must respond and break up our relationship.  Although Saudi Arabia sent a message of strong-arming the West, the outcome could come back to bite harder than Saudi Arabia might have anticipated.  Not only would penalties be enforced, but all arms sales to Saudi Arabia would be halted.  As they say, “money talks”.  The process would be painful, but looking at the current economic situation, the best time might be now to rip off the Band-Aid.  Although prices for fuel are going to go much higher, the long term consequences of this week’s actions are just beginning.

In local news, record high differentials in gasoline spot-market-spreads eased.  So although crude prices rocketed higher, gasoline prices eased a bit from the record highs last week.  Gasoline retail will still remain near the $4/gallon mark.  But diesel prices went on an absolute rip this week.  Diesel cost went up 90 cents/gal since October 1st.  We will see diesel prices over $5/gallon again at the pump any day now.  As harvest is just getting into full swing, the record jump in cost could not have come at a worse time.  I expect to see these prices hold for the coming months unless economic data starts to get really ugly and the FED continues to raise rates aggressively.

Propane prices have started to come up from their lows.  Propane has been fairly stable the past two months.  But as crude prices are now rockin’ higher, the propane trade is starting to come alive.  Based on the percentage spread of propane price to crude oil price, propane is primed for some big moves higher.  As demand starts to ramp up for propane, and if crude prices remain at the current levels, we could see some big moves higher in propane prices.  If you have not done so, we highly recommend filling your tank at this time.

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

Best regards,

Jon Crawford