Good morning!

I hope this email finds everyone well.  I wanted to thank all of our customers for another successful year in 2022.  Although 2022 was very difficult, volatile, and confusing at times, we were able to navigate and be prepared for 2023.  The last two weeks of the year are very light with trading on the exchanges, so commodity pricing is a bit wonky.  WTI is ending the year under $80/barrel.

I have decided to offer some predictions for 2023.  Now remember, commodity price predictions are probably the most difficult predictions to make.  And those that win are usually lucky!  My predictions are based on my personal research and looking at the 20,000 foot view of the world.

I believe there will be opportunities for lower oil prices in Q1 and possibly into Q2 as China manages their first nationwide Covid outbreak.  I also believe there will be a pullback in the economies of the US and Europe.  The combination of the two aforementioned scenarios could cause a bit of demand erosion that could pull down crude prices.  I also believe the FED will keep their foot on the gas or at least coast at current rates through 2023.  The FED actions will also support lower crude prices.  I am calling a bottom in WTI crude oil prices around $60-65/barrel.

On the flipside, if China’s outbreak doesn’t last very long, crude oil prices will find some legs.  If the US and Europe find a way to keep the economy on a soft-landing trajectory, crude prices will also gain some momentum.  Russia is continuing to threaten further oil production cuts, but Saudi Arabia seems to be more cozy with the United States.  Therefore I don’t believe Saudi Arabia would let WTI crude prices soar above $100/barrel.  All of that being said,  I believe that WTI crude oil prices have a ceiling price of around $95-100/barrel.

When comparing my future calls for WTI crude prices to the current price, WTI crude price is about smack-dab in the middle of my call range.  So for those customers that like to hedge their bets for the coming year, I do believe that purchasing a small amount of futures during the current pricing structure is not a bad place to start.  The strategy for 2023 is going to be cost-averaging and taking advantage of the price dips.  The coming year will be very volatile just like 2022, so we will need to be nimble and ready to pounce on opportunities when they arise.  Any opportunities for purchasing on a dip will be short lived throughout the coming year.  I am not advising any hedging into 2024 due to extreme volatility and the war in Ukraine.  If there is a settlement between Russia and Ukraine, crude oil prices will probably drop $10-15/barrel on the far futures market.  Therefore, no one wants to be holding a bag of 2024 futures if a major sell-off occurs.

I also believe that drivers will experience retail prices at the pump continuing to move in volatile ranges.  The United States is still very tight on production with a lack of refining capacity.  If a recession hits, refineries will be able to store more product and prices at the pump will fall.  But if the economy stays stronger than anticipated with a soft landing, refineries will continue to have no room for error.  My advice is to accept in advance that the prices at the pump will move around at a very rapid pace.  However, I do not believe diesel retail prices will climb above $5/gallon unless we lose another major refinery due to a massive accident for an extended period of time.  Gasoline retail prices will probably float in the $2.50-$3.50/gal range.

Propane production continues to be robust and exports remain at full capacity.  We could be experiencing the once-in-ten-year event where the rack price of propane stays lower than the contracted prices for 2022-2023 heating season.  Propane inventories are starting to deplete a bit, but not at a pace fast enough to cause a massive price spike.  There is still an opportunity for propane rack prices to break out higher in January and February.  But once again, I don’t see any reason to panic that the country is going to be strained on propane inventories.  The good news is that I believe propane retail prices will be around the $1.75-$2.25/gal price point for the 2023-2024 heating season.  In comparison to other heating commodities and their future price predictions, the predicted retail cost cost of propane will be a great value for those customers using propane to heat their homes.

As always, if you have any questions, comments, or concerns, please feel free to give us a call.  I wish all of you a safe and enjoyable New Year’s celebration, and I hope 2023 is full of laughter and prosperity for everyone!

Best regards,

Jon Crawford

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