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Just Like My Favorite Song… “No One Knows”

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Happy Friday!

I hope this email finds everyone well.  The news headlines of the week really tell the story of the WTI crude trade.  And just like my favorite song from Queens of the Stone Age… “No One Knows”.   Monday:  “Oil rises, but set for weekly loss as economic uncertainty weighs.”  Tuesday:  “Oil prices settle higher on optimism about fuel demand in China.”  Wednesday:  “Oil dips 2% on economic woes and strong dollar”.  Thursday:  “Oil drops 4% as recession fears outweigh US crude oil inventory draw.”  Friday:  “Oil steadies after Russia says global oil markets in balance.”   So… no one knows.  🙂   Is a recession going to hit hard as the FED continues to signal more rate hikes because inflation data continues to be messy: home prices falling, cost of some goods falling, slowing economy and record credit card debt, but consumer spending is staying high as well as high wages coupled with unemployment staying low.  In addition, we are trusting information from Russia and OPEC as the driver for prices higher.  Although WTI crude oil looks to close lower this week, unlike last week, refined products moved lower.  The amount of refining capacity worldwide continues to grow and traders are starting to get a little spooked that oil markets will be tight but an abundance of refined products will develop due to global recession.  The fears remain even as China continues to report growth.  However, you must take the info from China with a grain of salt.  No one is ever allowed to confirm nor deny the economic info coming from China.  So in conclusion, just like I started this paragraph with my synopsis of the WTI crude oil trade this week… no one knows.  🙂

Gasoline prices in the Chicago market continue to hold steady as refiners continue to produce more diesel than gasoline based on the anticipation of weak demand this summer.  But fears of global recession have pushed diesel prices below the cost floor that I thought was firmly set in place.  Diesel prices fell to a price lower at $75/barrel WTI than when WTI price touched $67/barrel during the “Black Swan” potential banking crisis!  I have never seen such bizarre trading activity since 2008.  Nothing seems to make sense in both the crude oil trade as well as the Chicago spot market trade.  What I can say, is that our neighbors in the Group are experiencing some of the most volatile trading in many years.  I believe Chicago might see some spot market price blowout higher on diesel because farmers are going to hit the fields hard for planting due to very sporadic weather.  And I also believe that Chicago could be in for a run higher on diesel prices this fall with harvest, especially if global prices for diesel are higher than spot prices in America.  For now, retail prices at the pump for gasoline should stay fairly steady, but retail diesel prices might ease a bit.

Propane prices dropped a little bit with the drop in crude price, but not nearly as much as usual.  I believe that we will see lower prices in May as we transition out of winter economics and supplier/retailers push to build allocations for next winter.  The United States is going to finish this winter with 50% more propane in inventory compared to last year!  I believe this might be a record.  The reason is due to a very mild winter as well as strong production.  I am very confident that 2023-2024 winter heating contracts will be lower than this past year.  But I am fairly bullish on 2024-2025 winter and beyond.  The reason is that I believe American producers of crude oil and OPEC will continue to try and keep prices high through lower production, especially if recession hits.  In addition, American propane suppliers will export at record rates with the current glut of propane, as well as not ordering as much rail propane from Canada moving forward.  For now, the consumer should be able to enjoy lower propane prices throughout the summer and lower heating costs for the next winter compared to last.  As I’ve been writing, not many commodities are cheaper for next year compared to last year!  Therefore, next winter propane customers should be very happy compared to those with electric or natural gas heat.  🙂

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

Best regards,

Jon Crawford

WTI Crude Oil Closes Back Below $80/Barrell

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Good afternoon!

I am writing my update a bit earlier due to conflicts tomorrow.  This week was very interesting.  “Risk off” took over the news wires as recessionary signs flashed all over the markets.  More attrition at large tech firms were announced.  The dollar gained back strength.  Bitcoin fell back below the $30k level.  Credit card debt continued to sky rocket to another record level.  The “repo man” took the most cars back last month since 2008.  Housing market purchasing slowed.  Fears of summer demand for gasoline are starting to take hold.  And most market makers are now pricing in a FED interest rate hike in May.  Now, that’s just American economic data!  On the world stage, refiners are expanding at incredible rates causing crack spreads to crumble in America and across the globe.  China and India continue to purchase Russian crude above the “cap” set by many countries.  So oil is flowing across the globe and refiners are moving forward at a quick clip, even though world recession could be on the horizon.  Even OPEC+’s large surprise cut is not really affecting the pricing that much because refiners around the world continuing to expand and run at high rates.  It’s amazing how much can change in one week.  Last week was “no recession in sight, and WTI oil is going to blow out towards $90/barrel.”  Now this week is “recession signals are everywhere and the FED is going to raise rates again.  Run for the hills!”  Even though I believe WTI crude oil will close below $80/barrel this week, I do not believe OPEC+ will let WTI crude oil price fall back below $70/barrel.  We would need another “black swan” event like the banking crises to experience WTI prices collapse that hard.  But for now, I would say the “risk off” is winning and cheaper prices are coming down the pipeline….for now. 🙂

In local markets, Chicago spot market never blew out in price to match The Group in spot diesel pricing.  In fact, as fast as The Group spot price rallied, the price collapsed this week.  Overall, cost of gasoline and diesel are going to end the week lower and I expect to see some falling retail prices next week at the pump.  However, with this high volatility, the drops can take some time as blended inventories work there way into the market.

Propane is sending a message loud and clear.  A price floor seems to be forming.  In other words, with how much WTI crude oil price fell this week, propane prices did not fall according to historicals.  I’m starting to see a floor for possibly summer and next year take shape.  Basically what the situation means is that propane producers have a certain price they need to make in order to keep operations running.  The cost of labor, materials, etc. continue to rise and I believe with the arbitrage to export, producers/suppliers are kind of saying “we wont make/sell for less than this certain price because it doesn’t make economic sense.”  Now, the good news is that I do believe that spot price in the summer will drop a little bit more, and I do believe that next heating season’s contracts will be lower than last year.  More to come as the volatility in the WTI crude trade continues.

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

Best regards,

Jon Crawford – Pres.

Not Too Much To Report

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Good morning!

Happy Friday!  I hope this message finds you all well.  Unfortunately, there is not much to report this week with crude prices.  The WTI trade moved between $80-82/barrel this entire week.  There was not enough news to really move the needle.  OPEC released their March data showing that production only dropped a small amount compared to quotas and the drop was from Iraq who had export issues in March.  Even though the cuts in production from OPEC seem to be in place and holding, oil markets are not quite letting the bulls into the arena.  Even though OPEC also reported record imports from China, the forecast for summer demand was very bleak at almost a 3% drop in world demand compared to last year.  Therefore the proposed cuts last month would be more in line with the marketplace if the demand erosion does occur.  So for now, traders are in a “wait and see” mode.  Placing a bet is VERY difficult right now.  In addition, there were no surprises on the EIA inventory report.  Gasoline prices continue to rise as refiners are producing more diesel to export.  Basically gasoline is in an old fashioned supply/demand economic scenario.  If demand picks up, supply will be tight, so refiners are keeping margins higher right now to be safe.  Inflation data cooled to 5% year-over-year, so the stock market took off higher, but crude oil prices held.  Most traders are split on whether the move down on inflation is still enough to stop the FED from raising rates at the next meeting.  Many banks are starting to call for recession in the second half of the year.  Even in recession, the strength of the dollar has dropped almost 10% from it’s peak six months ago, which is now supporting higher oil prices.  So if recession and a stronger dollar returns, we might experience an inverse relationship in the US.  Crude oil prices could fall, but gasoline and diesel prices will remain higher based on local production vs export production.  We have seen the Group spot price on diesel jump dramatically this week as farmers hit the fields.  In our market, based on the Chicago Mercantile Exchange, we are watching to see if there will be a familiar move in spot pricing jumping higher when planting starts in the Eastern Midwest.  Only time will tell.

In local news, I do not expect to see much change in gasoline prices.  Gasoline spot prices are more in a holding pattern.  So I would predict by the end of the weekend most retail markets will be at a stable market price.  Diesel prices have continued to climb all week, so I expect to see retail prices at the pump continue to rise into next week.  I am predicting a short-term blow out in diesel prices at some point in end of April or May as farmers start to plant for the season.  The level of increase will depend on how fast the harvest goes.  If almost all farmers start planting at the same time, prices will jump much higher compared to a steady spread of planting.  The weather will affect the speed of the planting. Again, only time will tell.

Propane prices continue to trend higher, however lower in price compared to last year.  I truly believe that refiners have carved out a floor for propane prices on next season’s contracts.  There is just a price that producers can’t sell below and make the necessary capital investments needed for production and exportation.  I do think we will see some better summer fill pricing, but like I have been saying, this is a year where there could be a larger spread between summer fill spot pricing and next season’s heating contract.  The good news, is that the market is showing that next season’s contracts will probably be lower in price compared to last year.  Imagine that!  Customers might have a lower cost of heating with propane compared to the cost of everything else going up.   🙂

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

Best regards.

Jon Crawford – Pres.

OPEC+ Throws The World A Curveball

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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.

What A Difference A Couple of Weeks Make!

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Good morning!

Happy Friday!  There was no update last week as I was on vacation.  As I left for vacation, the US was facing a possible banking liquidity crisis.  Medium sized banks were failing, the world was panicking, depositors were moving funds to the major four banks or monetary safety investments, and the FED was not being clear on how they were going to stop the bleeding.  WTI crude prices fell to the lowest price in a over two years to $65/barrel.  Many investors believed the “black swan” event was happening.  Crude prices and the markets were going to collapse.  Not only did the market and crude prices not collapse, but the market ripped back to higher than it was before the banking crisis!  The FED offered a backstop to all depositors.  A relief rally took momentum and did not stop.  WTI crude prices went up in two weeks from $65/barrel to now $75/barrel in less than two weeks.  The stock market rallied higher as well.  The FED met this week and raised rates 25 basis points, and even the raise did not budge the market rally.  Although many bearish signs are in the works, including liquidity issues in the banking system, a commercial real estate bubble that’s about to burst, student loan debt payments resuming, and high inflation, the markets have all shrugged and moved on ahead.

In world news, the escalation between Ukraine and Russia continues.  Russia is claiming to move tactical nuclear warheads into Belarus and is pulling out of the New START nuclear treaty with the US.  The treaty is an agreement that US and Russia will announce nuclear testing to ensure that either country views a test as a true nuclear attack.  The US condemned the action by Russia which adds further tension that Russia could use a tactical nuclear weapon in Ukraine.  China brokered a deal between Saudi Arabia and Syria and is looking to broker a peace deal between Russia and Ukraine.  Zelensky said that he is also willing to meet with Xi Jinping.  China has been on a role as a “peace maker” which has historically been the role of the United States.  Overall, the actions from China in the past two weeks are displaying signs of a super power that can offer peace treaty guidance to complex foreign relations.  The work of China is weakening the influence of the US around the globe.  The US also sold nuclear submarines to Australia further escalating tensions with China, convinced Japan to limit chip exports to China, and welcomed the President of Taiwan to the US for a visit.  Also, in response to China brokering a peace deal between Saudi Arabia and Syria, Saudi Arabia is funding the construction of a large refinery in China to guarantee an energy relationship for the future.  The US is losing clout in the world quickly.  Therefore, the global tensions in the world are adding a “risk-on” premium to the price of crude oil.  And the cherry on top, Finland looks to be approved for NATO membership next week.  The escalations in world tensions connected to the US continue to grow.  And instead, tensions with China and other countries continue to move towards peace and trade relations.  From a 20,000 foot view, the US has a lot of work to do.  In addition, OPEC is holding firm to keeping production cuts in place.  Iraq lost 450k barrels per day of exports this week, but should be back online within a month.  The support level of WTI at $65/barrel seems to be very strong.  The US is working globally now as a major exporter and I believe that the market has set a floor that WTI prices under $65/barrel is not sustainable.  Although we could see another pull back in prices, I just don’t see WTI crude prices falling below $65/barrel anytime this year.

In local news, crack spreads for refiners got hammered this week as refiners continue to push diesel production over gasoline.  But with a potential recession looming in the US, there is only so much diesel that can be exported.  Therefore, diesel prices have relaxed a bit due to the crack spread collapse.  However, gasoline prices have continued to trend higher due to lowering production of gasoline.  Refiners have decided that the world market appetite for diesel is much stronger than gasoline.  And the potential for lower gasoline demand is on the table for the summer.  Therefore, refiners would rather make money on gasoline locally and use the world price export arbitrage on diesel to their advantage.  I do not expect to see gasoline prices be low this summer, even with potential weaker demand.  Diesel prices could hold a bit lower if we ride into recession.

Propane prices have found support as WTI crude price increased.  When WTI crude prices dropped to $65/barrel for a brief moment, propane prices did not drop that much.  Propane has been trading on a historically low percentage value to crude prices.  Therefore, crude prices really need to drop below $65/barrel to cause a major drop in propane prices.  In addition, due to the mild winter, propane inventories are very high across.  But refiners are sending the message loud and clear that a floor for production is in place for next winter.  I believe we will see cheaper prices in the summer, but a fairly decent premium between summer fill and next season’s heating contract price.  Although I firmly believe next heating season’s contract price will be lower than next year, I would not be surprised to see a 15-20 cent premium between summer fill price and next season’s contract price.  I will be urging everyone to top off their tanks this summer and contract for next season, even at a premium.  The reason is the value percentage of propane price compared to crude oil price.  Crude oil prices have a long way to drop before propane price will truly affected.  And I just don’t see refiners giving up margin as the world continues to push the alternative energy transformation agenda and world economics continue to be volatile.

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

Best regards,

Jon Crawford

The Markets Have Spoken

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Happy Friday!

Well, I don’t think I need to talk too much about the bank failures and bank runs that have occurred across the US and Europe.  I think the main media did enough non-stop coverage on those topics!  🙂  The contagion fears and misinformation being discussed by major news sources did not help this week.  There were no risky bets by Venture Capital that caused these banks to fail.  The banks made poor decisions such as investing in crypto, long term bonds, and mortgage backed securities.  The FED raising rates at an incredible pace caused these banks to be pinched, along with rates increasing in Europe.  The money pouring in from major banks as well as a FED backstop will not affect the American taxpayer.  These are not bailouts.  I believe we are doing the right action and letting the bank executives, board members, and shareholder lose their money.  Not the depositors.  The FDIC insurance of $250k is absurdly low.  I previously stated that most of this fear would blow over in a week or two, and that has already happened.  The plan in place should stop any major collapse and the big banks came to the rescue.  The fear of economic collapse caused WTI crude prices to collapse.  I have called a bottom at $65/barrel on WTI and then a catastrophic bottom at $59/barrel.  Well, even with the massive selloff, WTI could not break through the $65/barrel price.  The crude oil market is sending a message.  Energy companies must continue to make money and $65/barrel seems to be the minimum price to continue profitability in operations, investment in alternative energies, and stock buybacks.  Major oil companies need to continue to be profitable as they are investing heavily in the alternative energy space.  The majority of all major alternative energy investments are coming from oil companies around the globe.  Now, let’s take a quick step back.  Will Exxon/Mobil be held accountable like the cigarette companies for covering up their knowledge of global warming that they knew about through research 20 years ago and covered up?… Yes.  Will bank executives and shareholders who sold positions two days prior to the current collapse be forced to return money that will go to back to teh FED?… Yes.  The US government and all agencies have made it very clear that these companies will still be held liable.  The lawsuits and claw-backs will take time.  Unfortunately, just like the the Big Banks that are “too big to fail”, the major oil companies are still the fastest vehicle to implement alternative energy projects such as windmills, solar, and hydrogen across the United States and the rest of the globe.  If oil prices fall too low, American citizens and other customers around the world lose interest in alternative energy because the cost to fill up their cars and heat their homes puts more cash flow into their pockets.  The incentives must remain in order to invest in alternative energy sources, and I believe WTI crude oil must stay at or above $65/barrel to achieve our alternative energy goals.  In addition, if WTI crude prices fell below $65/barrel, I believe that American oil companies as well as OPEC would announce production cuts immediately in order to prop up price.  For the first time ever, American oil companies and OPEC are in sync with incentives.  Market share is no longer the main incentive and driver of profitability.  Pivoting into new business ventures outside of oil is driving the economic engine of all oil producing companies and nations.  Although I believe solar will be the major alternative energy producer for electricity, I am very long on liquid hydrogen in the auto and heavy duty trucking industry.  I believe liquid hydrogen will be much easier to scale and maintain than electric vehicles due to the reliability/availability of rare earth metals and a supply chain that is so difficult to manage worldwide.  Liquid hydrogen can be produced locally in each country and the retooling of factories to pivot towards liquid hydrogen is much easier than electric vehicles.  Lastly, I do believe we are skipping along the bottom of crude oil prices and there are some value hedging opportunities.

In local news, Chicago spot prices were all over the map.  After seeing some market price erosion, gasoline prices firmed up due to the continuing change to summer RVP spec.  Diesel prices fell but ended the week firming up as crack-spreads shook off the price collapse in crude oil prices and traded higher.  I don’t expect to see too many changes on retail prices due to the whipsaw market moves.

Propane spot prices continue their steady trend, and future prices did not fall as much as expected due to the current massive value of propane price compared to crude price.  We are well below the historical average.  Therefore, I believe that future prices of propane will not move much, even if WTI crude oil price stays around $60-65/barrel.  However, because of large levels of propane inventory in our national storage due to a dud of a winter, I believe suppliers will be aggressive on getting rid of propane this summer to make room for the winter storage based on future allocations.  Therefore, I could see the scenario where summer fills are 10-15 cents, maybe even 20 cents/gal, cheaper than the contract price for propane heating season in 2023-2024.  However, next year’s heating contracts will be cheaper than this year which is incredible in a time of high inflation.

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

Best regards,

Jon Crawford

The Power of the FED

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Good afternoon!

I’m writing my update a day early, but once again, I don’t see much changing going into Friday.  As I wrote last week, the market and crude oil prices were grasping at straws to keep a nice rally going.  But I pointed out the true economic cracks in the market reasoning.  Remember, markets are not the economy, nor are they rationale.  Well, this week, the power of the FED was on full display.  Powell testified before Congress and did not mix words.  Even when Senators drilled him and threw anger his way, Powell stood his ground and now said that a half-point is on the table and he will not stop until inflation breaks.  Powell does not see the economy cooling as others are describing.  In addition, China has lowered their GDP forecast and the EU seems to be living in the alternate universe that America was living in the past couple of months.  The EU believes a “soft landing” is possible, but the cracks are showing there as well, just as they did in the US.  In addition, Russia has found plenty of buyers for crude.  Although Russian exports are down, America and Venezuela are filling the gaps.  And we must always remember there is a ton of spare capacity in OPEC.  Natural gas exports continue to run hard from America to Germany and America looks to be able to fulfill most of the gap from the loss of the Nord Stream.  Crude oil production is continuing to try and grow, and refineries are coming back online this year that were closed last year due to either accident or major upgrades.  President Biden has made it clear that the US must continue to invest in crude oil and finished products to bridge America and the world to cleaner fuels.  Crude prices sold off almost 10% on the news this week.  Every week is a push and pull.  WTI crude prices are now moving closer to $70/barrel after testing $80/barrel last week.  I expect crude will continue to trade in the $70-80/barrel range until summer.  If summer demand turns out to be a dud, and Europe slows down, crude oil prices could really nose dive.  But if a nose dive starts to happen, OPEC will cut production to keep the bottom from falling out.  So for now, we wait and see.

In local news, gasoline retail prices rose as the market converts to summer gasoline vapor pressure.  And with summer demand projecting to be lower than last year, refineries are making more diesel than gasoline.  Diesel is in much greater demand around the world.  Therefore refiners can make less gasoline and keep the prices of gasoline higher, all while making better profits on diesel abroad.  I think gasoline will hold around the $3/gallon area in Wisconsin and diesel prices could start to hit the $3.49/gallon on retail if the selloff continues and the Midwest refineries scheduled to open come back online.

Propane continues to build in national inventory and when the winter contract season has completed, I expect to see retail prices drop.  As of now, America has almost 40% more propane in inventory than last year!  I do think summer fill prices will be attractive.  However, I do see a potential for a slight premium on winter contracts over summer fill pricing due to suppliers trying to move as much gas out of the caverns so the country does not run out of storage.  For now, I think the worst of winter is behind us and now we wait and see what summer brings!

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

Best regards,

Jon Crawford

Are Crude Oil Prices Grasping At Straws?

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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

Strange Things Are Afoot Under The Hood

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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

Crack Spreads Dropping In The United States

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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