Good morning!
Happy Easter weekend! The big news of the week started Sunday when OPEC+ announced a surprise additional oil production cut of 1.2M barrels/day starting in May. All American oil analysts were convinced that OPEC+ was going to hold to the current cuts in place. The announcement caught everyone off guard and crude prices soared over $4/barrel, pushing WTI crude price back over $80/barrel. Remember, WTI crude price was down to almost $65/barrel just two weeks ago! Clearly OPEC+ is sending the message that they will not let WTI crude prices fall below $70/barrel and prefer to keep prices even higher. The majority of the cuts are being led from Saudi Arabia with 500k/barrels per day. Iraq and UAE are the next two leading the charge. Some analysts are now spooked that if summer demand is higher than predicted, $100/barrel crude oil is back on the table. The cuts were a reaction to the fast fall in price a few weeks ago due to the banking financial crisis in the US and in Europe. OPEC+ wants to remain ahead of the monetary crisis and control crude prices. The only good news is that we are seeing a “floor” forming for crude price which does provide some stability. Although the price is higher than anticipated, stability is very important for future purchasing. In the US, the financial and economic measures are just a mess and making everyone scratch their heads. Large companies continue to lay off thousands of employees, job openings dropped a touch, and jobless claims rose a tiny bit this week. However, the stock market went up, along with gold which is extremely rare. In addition, the most amount of cash poured into money markets the past month, while treasuries and bonds fell in price. Like the episode “The Opposite” in Seinfeld, the market is behaving very strangely and causing everyone to take pause. Almost all major institutions are saying that they have no idea what’s going to happen this year. The predications are very vague and broad. Although crude prices soared, the crack spreads for WTI crude collapsed but recovered a bit towards the end of the week. The interesting effect of higher crude prices is that American drillers will continue to produce at high levels for exportation purposes while also being able to fully supply the needs of the US, especially if the US falls into recession. And since diesel is in such high global demand, and diesel is easier to refine from crude oil compared to gasoline, many are predicting that most refiners will make more diesel than gasoline. The residual affect from high diesel production will mean lower prices in the US for diesel, but higher prices on gasoline. In addition, more refiners are coming back online this year. So for the first time that I have seen in 15 years, we could experience lower prices of diesel and possibly gasoline in the US compared to the value price percentage of crude oil. But honestly, with the Russian/Ukraine conflict escalating, China and the US fighting at almost a cold war level, Israel and Palestine starting to fight again, and countries cutting deals with China instead of the US, who knows what’s going to happen the rest of the year! All I know is that if OPEC+ stays the course, American oil production will be very robust. The much higher production of refined products will hopefully allow for more affordable gasoline and diesel in America as producers offset the profits with much higher export pricing.
In local news, crack spreads jumped all over the place during the past two weeks. Diesel prices have fallen back to their average for the month, but gasoline prices continue to slowly rise as summer RVP enters the market place along with less production. The world appetite for gasoline is not nearly as strong as diesel. In addition, I do believe that refiners are betting on a recession in the US and would rather sell less gasoline at higher prices than try to compete for market share. Time will tell as we get to the end of the school year and travel time begins. For the first time in a long time, higher earners in the US have reported that they are cutting back on high end travel. Although they are saying they will travel, the amount of money spent will be less. In addition the US continues to experience record credit card debt, falling home prices, increased prices of cars, student loan payments starting back up, and record layoffs at large companies. Therefore, the US is not heading down a positive path. I also believe that the FED will raise rates at least one more time. Our economy is close to breaking, but not quite yet. I really think that there will be a mini recession and I advise all consumers to be ready with savings for at least one to two years to avoid having to borrow money at extremely high interest rates in case of emergency.
Propane prices rebounded a bit with the rise in crude oil price. But with higher crude oil prices comes more production. The US continues to have excess inventory of propane due to the mild winter. Going into summer, I expect to experience lower propane prices for summer fills as suppliers build allocation for the next winter. But from what I am deciphering in the marketplace, even propane is carving out a bottom on future prices for the winter. I believe suppliers are sending the message that they just wont sell propane below a certain price due to cost of operations as well as the growing movement towards energy transition. The good news is that I do believe that summer fill prices will be attractive and next season’s heating contracts could be lower than this winter. In a world where most goods and commodities are increasing in price, propane prices might fall. There is still much value in propane compared to crude oil price and consumers might be pleased that they can budget less money for heating their homes next year even if the economic wheels fall off in our country.
As always, if you have any questions, comments, or concerns, please feel free to give us a call. Have a safe and enjoyable Easter weekend!
Best regards,
Jon Crawford – Pres.
