Good morning!

Happy Friday! Discussion of crude oil prices was fairly quiet this week.  WTI crude traded very sideways and seems to want and try and hit $80/barrel again.  I feel like crude oil prices are grasping at straws to hang on above $70/barrel.  The only really bullish news is that China is reopening and demand will be strong.  However, as China continues to work with Russia, China will import a lot of oil from Russia, therefore not disturbing the overall supply/demand at a catastrophic level.  Plus, OPEC has a lot of spare production capacity and the US continues to increase production at almost pre-pandemic levels.  The economy in the US and around the globe seems to be riding at a peak.  I really fell that eventually the consumer will have to throw in the towel.  Car payments on average are above $1,000 per month with two extra years added onto the loans.  The service industry continues to inflate prices.  Orders from China are starting to decline.  Home mortgage applications dropped to the lowest level in over 28 years as interest rates hit 7%.  Eventually, the consumer will tighten and there just won’t be enough jobs available.  Once the service industry starts to cut employees a bit, look out.  Now, the FED and the ECB are talking about whether to increase rates at a slower pace or increase rates at a greater pace .  However, they are not talking about stopping.  So the news is positive for the markets based on the possibility of slowing rates, but the markets are not the economy.  In addition to all the economic data, the war in Ukraine is such a wild card.  Who knows what will happen there.  All I know is that I do not see OPEC, especially Saudi Arabia, allowing crude oil prices to drop below $60/barrel, even in a recession.  I also don’t see OPEC allowing prices to trade much above $80/barrel.  I see crude prices being very choppy this year with more potential to rise at the end of the year only if Europe and the US economies survive the economic pain as China, India, and Vietnam ramp up economic production.

In local news, gasoline retail prices rose along with diesel.  Refiners are now having to make 13.5 RVP (which is summer gasoline vapor pressure versus much lower in the winter).  Gasoline prices usually climb higher into summer because of the increased cost to produce the product.  However, when looking at the crack spreads on a barrel of oil, I believe refiners are looking to make more diesel than gasoline this summer.  From what I can see, refiners are seeing a drop in gasoline demand going into the summer.  And the possibility of a lower demand gasoline summer means that refiners will raise prices in order to make up the lost volume, rather than compete for market-share.  Refining companies have all become very dependents on higher margin returns in order to pivot into renewable energies.  In addition, the world market for diesel is still very strong and refiners can move diesel barrels overseas at a nice premium.  So why would a refiner produce gasoline which is dropping in demand at home, when diesel is in higher demand at home and abroad?  Even if the summer ends up being a dud for travel, I still see gasoline prices being higher than average.

Propane is holding steady into the end of the winter.  So far, the winter has been 3% warmer than last winter.  Propane demand at home and abroad has been lower as well.  As customers look to save money, thermostats get lowered and alternative heating sources get added.  We are also experiencing customers paying bills with two credit cards.  All of the aforementioned items are combining to push propane inventories over 30% higher than last year at this time!  I expect to see rack prices drop this summer as suppliers and retailers compete for allocation in an oversupplied market.  However, I still expect to see the average of 10-15 cent spread between summer fill price and next season’s contracts.  Propane rarely trades in backwardation (when future prices are lower than spot price) when going into the upcoming year .  The reason for the premium is that no one can predict the next winter.  Propane prices trading two to three years out will go into backwardation, but those prices are more of a hedge bet and need to be evaluated on past historical data and value to crude.  As we approach the end of winter, please make sure to keep your driveway plowed/salted, tree branches trimmed over driveways, and a clear 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

Good evening!

I am writing my weekly report before the final day of trading this week.  Thus far, WTI crude oil prices have traded in a very narrow range around $75/barrel.  But the amount of strange events and data releases this week are making future predictions even more difficult.  On Monday, you had Biden in Ukraine showing solidarity and promising to send more weapons.  Then on Thursday, you had the ambassador from China meeting with Putin and promising solidarity, but asking for a ceasefire and offering a 12-point peace plan.  China is trying to pivot as a possible deal maker, but nothing in the plan looks like a starting point for Ukraine.  And then Russia shelled Ukraine today in honor of the one year conflict.  We are now entering a phase where the US and China will be even more proxied into the conflict.  And in retaliation for China showing solidarity with Russia, the US doubled down on its’ presence in Taiwan.  All major powers are continuing to try and look like heroes while poking each other in the eye.  Russian crude and refined products were found to be traded from ship-to-ship in the waters around Greece.  About 300k barrels/day of product is being transferred and Greece says there is nothing they can do about it.  Then back at home, the economic data is so confusing and possibly shifting the economy back into wage inflation.  Weekly jobless claims fell, while continuing jobless claims fell.  But GDP from Q4 was revised down, and inflation from last month was revised higher.  The FED met this week and were unanimous in wanting to raise rates at least .25% next month.  However, many more FED members are pushing towards .50%.  Even though tech and other large companies are laying off by the thousands, the service industry is paying through the roof for employees who want to maintain their lifestyle.  Although commodities and other items might drop in price, the increase in wages is going to drive inflation higher.  So the FED might get stuck in a situation where no matter how high they raise rates, employers will just pay more to the employees and then raise the retail prices.  So for now, things look healthy and the economy looks pretty good on the outside.  But under the hood, things are not looking great.  The long-term trend that is brewing could be very dangerous.  The strength of the dollar in comparison to other currencies seems to be peaking.  Other countries are tightening up monetary policy to catch up.  This does not mean that the dollar will drop in value and cause commodities to go up in price.  Other countries will just be able to afford more as they prop up their currencies through rate hikes and tightening.  Some economists now believe the FED might have to go to at least 6% to slow things down.  The question is, how will we slow the wage increases without breaking the economy?  The second half of the year is going to be very interesting.  The possibility of a soft landing recession is still there, but until wages start to come down along with retail prices, we are stuck in a very scary spot.  Credit card debt is still the highest in history.  Home purchases are grinding to a halt.  And the cost of service based entertainment is continuing to skyrocket, including travel.  Eventually, with enough rate increases, the rooster will come home to roost.  I believe summer gasoline demand will be less than last year.  And I’m not so certain that the economy is going to land softly by the end of the year.  If we can help with a ceasefire in Ukraine and take some of that risk of the table, we can hopefully better balance crude prices.  But there is so much crude oil coming to market this year.  The US is continuing to build national inventories weekly.  I guess at the end of the day, as I look from a 20k foot view, I don’t see the US dealing with $100 crude anytime soon.  But I also don’t see crude prices falling below $60/barrel.  As the world banks tighten and geopolitical issues play out, I think crude will dip at some point this year.  But then again, out of nowhere, Iran has access to a nuclear weapon as well, who knows!  Oh, and we are about to enter a presidential election cycle in the US.  Instead of everything slowing down as it should be right now with tightening monetary policy around the world, things seem to be heating up.  And eventually, a bubble will burst.  The big question is which bubble will burst and where?

In local retail news, gasoline prices dipped but recovered this week.  So I do not expect to see much change in retail gasoline prices.  Diesel prices continued a downward trend for the week and I do expect to see cheaper diesel retail prices into next week; especially now that we are through the coldest part of winter and expensive winter blending is behind us.

Propane prices moved around a little bit this week, but not much.  There were some decent draws on national inventories that past two weeks, but the US still has 30% more propane in inventory this year compared to last year.  Last year April was cold so I’m expecting to see the build in propane inventories continue through spring into early summer.  And if inventories continue to strongly build, summer fill prices might be very attractive, as well as next season’s contract pricing.  But first, we need to finish up winter.  🙂

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

Best regards,

Jon Crawford

Good evening!

I am writing my update a day early, but I can only imagine that the trend of the week will continue tomorrow.  Not much has changed in the world this week, but some subtle news really sparked the jitters of market watchers.  The week started with crude oil prices moving higher towards $80/barrel as traders celebrated the idea of a “soft landing” into recession.  But then on Wednesday, the EIA reported a massive build of 16M barrels of crude oil in the US inventory!  And in addition, inflation is not moving lower at the pace that is truly needed for a soft landing.  Then Biden stole Vice Chairman Lael Brainard from the FED to be his chief economic advisor.  Lael is very dovish on economic policy which gives more leeway for the FED to be hawkish.  Credit card data continued to point towards the consumer running out of money, and large companies continued the layoffs.  Basically, the consumer is holding on to their spending habits by their fingernails.  The week ended with crack spreads for refiners collapsing as many believe the FED will continue to increase rates, especially now that Brainard is no longer in the FED.  And as more refiners come back online while building crude inventories build, mixed with record exports, the refining margins start to shrink.  I am still holding my position that it’s only a matter of time until the consumer takes the medicine and the economy goes into some type of recession.  How deep is up for debate.  But even a “soft landing” is still a recession which no one seems to really discuss.  For now, we cost average and keep a macro point of view.  The Russia/Ukraine conflict seems to be priced into the market and is no longer as much of a threat as it was a year ago at this time.  But hopefully we will see an end to the conflict by year end.  I know that is optimistic, but I believe it’s possible if China puts some pressure.  But now that the US and China have entered into a debate about spying on each other, I see a greater wedge forming between the US and China, just as the two countries were going to start talking.  I believe that China will be one of the hottest topics going into the next Presidential election.

Retail prices for gasoline and diesel moved all over the map.  We ended the week lower in price out of the Chicago market, so the possibility of lower retails prices are on the table for next week.  But there is still one trading day left in the week.

Propane prices went up a bit this week based on a larger than expected drawdown in inventory.  But the US propane inventory is still 40% ahead of last year.  Once the winter demand dries up, propane is probably going to sink like a rock in a lake.  No supplier wants to be long propane right now in my opinion!  As a reminder, please make sure your driveway is plowed/salted, trees hanging over the driveway are trimmed, and a clear path to your tank is possible.  All the previous actions will ensure a safe and efficient delivery, and a happy driver!

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!  First of all, our thoughts and prayers go out to everyone affected from the earthquake disaster in Hungry and Syria.  The devastation and loss of life has been almost incomprehensible.  Part of the devastation did affect crude oil exports out of hungry that feeds China, so WTI crude oil prices rebounded from approaching $70/barrel and started heading towards $80/barrel.  In addition, Russia announced that they will be cutting 500k barrels per day of production to try and prop up prices.  Although these major events are of great concern for higher oil prices, the bearish news seems to be shrugged off and a disconnect is forming.  The dollar is still very strong and I do not believe the FED is done with raising rates or that a “deflationary” period has begun.  The attrition at companies continues to be strong and is spreading beyond tech companies.  Credit card debt is piling up on Americans not wanting to change lifestyles post Covid.  In addition, mortgage refinancing was up 18% when 30 year rates hit 5%!  Home owners are trying to refinance to gain access to HELOC money, and we know those HELOC rates are higher than 5%.  Eventually, the US consumer is going to be cutting back on spending. The money is starting to run out.  I believe that the FED will hit 5% on rates or even go higher.  Companies are “taking the medicine” as they say, but consumers are not throwing in the towel just yet.  In addition, the US continues to build crude oil inventories, gasoline inventories, and diesel inventories at only 87% refining capacity.  We are building inventories in the US and more refineries are coming online within six months.  Another big disconnect was possible response from OPEC to Russia’s announced production cuts.  The move was announced without the approval of OPEC.  I believe that OPEC will respond to Russia by increasing production and possibly even removing Russia from further OPEC meetings.  No one in OPEC likes to have a country act alone.  Venezuela crude oil is also starting to come to market along with crude from Mexico.   And refining capacity is gaining momentum around the globe.  I truly believe that the crude oil markets are disconnecting from the facts.  But that’s the nature of markets!  Markets are irrational, and separate from the economy.  The next two to three months will really be telling.

In local news, gasoline and diesel cost have been on a roller coaster due to local economics coming out of winter.  Many suppliers are trying to figure out how much gasoline to produce as the vapor pressure requirements change in March, yet demand could be a dud this summer.  Diesel prices are bouncing around as well.  Because of the roller coaster in local economics, consumers will experience retail prices all over the map for the coming week or so.

Propane prices are starting to rise, even though inventories are sitting at 40% higher than last year with record production and exportation.  The winter has been mild compared to last year and I believe suppliers are going to raise margins to retailers in order to make up for loss of sales.  But watch out for April.  I think once winter contracts clear end of March, propane prices will start to fall as suppliers compete for gallons.  If we continue at the current pace in propane production, we should experience some great summer fill pricing, as well as lower energy cost for next heating season.  As always, please make sure to plow/salt your driveway, keep a clear path to your tank, and trim any trees overhanging your driveway to ensure a safe and efficient propane delivery.

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

Best regards,

Jon Crawford

Good morning!

Happy Friday!  A lot of information was released this week.  And by information, I mean numbers.  Numbers seem to be the name of the game: number of people being let go from companies, numbers on earnings reports, numbers of oil rigs active, number of people tightening on spending, number of tanks being sent to Ukraine, number of propane barrels in storage, number of people looking for jobs, number of people being hired, number of people in China traveling and going back to work, etc.  At the end of the day, there is a huge argument being made whether or not the US will go into major recession or land softly.  What’s interesting about each argument, is that both agree on recession, just a difference in how bad the recession will be.  Well, let’s take a look at a little more of the data.  Housing market value is showing signs of weakness as consumers tighten up their spending.  Therefore, if push comes to shove and people need cash, because they overpaid for their homes, they might be upside down on their mortgage and unable to obtain cash.  And even if someone was able to take a HELOC out on their home, the interest rates will be probably 7%+.  Another interesting fact is that the US has hit the largest amount of credit card debt in history and the average credit card payment is being paid at 19% interest!  The stat is saying for example, those who pay their credit card bill each month with no interest are the low end, and the high end could be near 29%.  So out of the entire United States, the average consumer is paying 19% on their credit card debt!  Even at our office, consumers are starting to pay for their fuel on two credit cards.  The situation is probably the most telling of where we are heading.  Consumers have been continuing to try and live as they did during Covid times with cash flowing in and employees holding the power over businesses.  But as most trends go, situations change.  Most major companies, including small businesses have gone through attrition of 5%-40% of their workforce!  Many of these workers that were let go are going into the service industry that has continued to be healthy, but will start to diminish as consumers tighten.  And in addition, inflation continues to affect food prices.  And some of these employees that were let go might try and start their own business eventually which will bring the economy out of recession in the coming couple of years, but that takes time.  Now, where does all this data lead to for crude prices?  Well, the most deep ocean drilling rigs have been put to work over the past six months in almost ten years.  Norway is at full steam ahead in production.  America is full steam ahead in production (still lacking in refining, but that will get better), and OPEC+ is starting to get annoyed with Russia and their taking of market share in India.  So the price of crude should relax in the first half of this year, and might recover if economies around the globe start to bottom out and stabilize.  As I have been writing, I believe the numbers for inflation are going to finally be accepted that they are really showing the areas of true consumer spend are still going up, and the goods that are decreasing in price are mostly being used by companies that are going through attrition.  I don’t believe we will start to dig out of the hole that forms in 2023 until first part of 2025.  We will have a presidential election in 2024 where the economy will be front and center.  I think next year is going to be very telling on where America heads for the second half of this decade.

Local retail prices on gasoline continue to hover around the $3.00/gallon and diesel retail prices are around $4.25/gallon.  As the deep freeze comes next week, it’s very important for anyone purchasing diesel to make sure that you are purchasing diesel blended with #1 diesel.  Regular diesel with winter additive only will not make it through some of the days next week.  I understand that blended fuel with #1 costs more, but I believe that fully blended diesel is needed.  Please make sure to speak with your local supplier or gas station on what type of winter diesel they are selling.

Propane continues to surprise everyone.  Exports remain at record highs, demand is at the same levels of last year, yet production continues to be incredible.  The country is now sitting on 30-40% more propane this year compared to last year.  Although rack pricing is cheaper than contract pricing this year, when you look at the ten year average, those who have contracted propane for their heating needs are still ahead.  I’m expecting propane prices to just fall off a cliff starting in April/May.  I believe that next year’s heating cost will be lower than this year.  As a reminder, please make sure to keep your driveways clear of snow/ice, trim any branches that are blocking the driveway, and have a clear path to your propane tank.  These actions will ensure a safe and efficient delivery of propane during the busy season.

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

Best regards,

Jon Crawford

Well, we questioned how long the crude oil correction downward last week would last.  Unfortunately not very long.  The market this week was in full up-swing mode and brought everything along with it, including the price of crude oil.  Although large businesses continue to cut jobs at over a 20% clip and earnings have not been great.  And then couple that with a slight dip in inflation and unemployment, and you would think we are having the rally of the year!  I am not believing that the FED will cut rates in 2023.  The United States has been addicted to low interest rates for too long and Powell will not make the mistake of allowing inflation to run higher again.  When looking at inflation, the areas that are seeing increased cost are the areas Americans are looking to spend this year: travel and food.  Credit card debt hit a record average of 19% interest.  Plain and simple, the American consumer is running out of money.  The consumer was very used to a certain lifestyle coming out of the pandemic and unfortunately I think the lifestyle is going to end with a bit of pain.  Markets are very irrational and right now the markets seem to be grasping at straws to move higher.  Crude oil is always a wild card, but when looking at China going fully open and having to deal with multiple large waves of Covid before they calm down to a normal like in the US, coupled with incredible production of crude oil on the stateside and many more sources of crude coming online in 2023, I think crude oil is being setup to fall.  How far crude will fall is yet to be determined.  I’m also not sure how long this irrational market will run.  Sometimes markets get caught up in a frenzy and the party lasts longer than anticipated before the rug falls out from underneath.

In local news, gasoline and diesel prices continue to climb as Chicago refineries move barrels down to Nashville to help out the East Coast.  In addition, we are still waiting for Superior, WI as well as Toledo, OH refineries to come back online.  I think our market will be well supplied for the year as these refineries return.  Right now every little bit helps.

Propane continues it’s record inventory run.  Right now, propane inventory is 25% higher than last year.  And production is not slowing down.  I also do not expect to see production or exports slow down.  We can’t export anymore than we are currently completing, so I believe that propane prices could fall off a cliff this summer.  The good news to the consumer is that although prices on contracts might be higher than rack this year, next year’s prices are looking to be incredibly great in value compared to natural gas.

To sum up everything from crude oil, to diesel, to gasoline, to propane:  patience and cost average. Micro actions. Macro patience.  I will continue to update as 2023 unfolds.  I believe we are going to have a very interesting year.

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 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