Good morning!

Happy Friday!  The update this week is based entirely on national issues.  There is not much to report on international news.  After weeks of falling crude prices, the crude oil trade found some legs this week.  WTI price is now moving back closer to $95/barrel.  The EIA had an interesting report showing gasoline demand higher than expected based on a large draw in inventory, but also showed a much larger build in crude oil and distillates.  Couple the supply data with the 8.5% CPI print and markets reacted with joy believing the worst is behind us and nothing but glory days ahead!  But as I have written before, the devil is in the details.  The drop in CPI inflationary data was mostly due to the drop in price of gas/diesel.  So a slight drop in CPI was expected in my opinion.  But our economy is not going to sustain at a 8.5% CPI.  And if crude prices rebound, 8.5% CPI will not continue to decline.  Also, refining utilization stayed strong.  And with the much larger increase in diesel inventories reported, basically refiners made more diesel than gas last week.  The decline in gasoline inventories was mostly due to less gasoline being refined, not demand, in my opinion.  I believe that markets react irrationally and therefore the WTI trade is possibly in a dead cat bounce right now.  I am not going to say that these prices are going to hold into the end of the year.  We are seeing gasoline demand back at 2020 levels which was the first summer in the pandemic!  Consumers are starting to change behavior.  The calls are basically now how deep of a recession will occur.  We are receding, but I chuckle that after this week’s data the markets react like everything is now perfect and back to normal!  The irrationality of the markets create opportunity and right now, it’s time to just sit back.  I really do believe the current rally is a head fake and we are experiencing a dead cat bounce after weeks of declining prices.

In local news, gasoline and diesel prices have bottomed.  You might even see prices at the pump go up next week.  Gasoline cost rose almost 20 cents per gallon this week and diesel cost rose over 30 cents per gallon!  The volatility remains very high in the spot refined markets.  Supplies are tight but manageable.  Once summer ends, the spot markets will get very interesting.  🙂

Propane prices rebounded this week a bit as well.  I am not excited about our national inventory levels.  Our exports are strong, Canadian supplies in the East are low, and our national levels are still below the five year average.  At the moment, propane price is also considerably cheap when comparing the value to diesel and natural gas.  So even if we have a low corn drying demand and warmer fall, I don’t see propane prices falling.  Basically, propane prices look to hold around current levels, but have incredible potential upside movement.  I highly recommend topping off your tank this summer and contracting at least some of your heating gallons for the upcoming winter.

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!  Crude prices are starting to do “the limbo” game.  The bar continued to be lowered this week and traders kept passing through without touching.  As of today, WTI prices are now LOWER than when the war in Ukraine started.  WTI crude price is looking at closing below $90/barrel this week.  The crack spreads on gas and diesel have collapsed as demand erosion spreads across the US and Europe.  The fear of continued economic recession has gripped markets tightly.  In addition, a higher than expected jobs report today gave further fuel to the FED’s tightening policy.  For now, we expect interest rates to continue to trend higher. The backwardation curve on crude prices has falling even lower.  Citi Bank is now calling for WTI prices to collapse towards $65/barrel.  However, unlike market collapses in the past, most believe that OPEC+ will step in at $55/barrel and start production cuts to keep prices from falling below the minimum sustainable operations and profitability price point.  OPEC+ is also expected to announce a minimal increased production level beyond the agreed upon quota to appease Biden from his visit last month.  The unknowns at this point are hurricanes.  Hurricanes could actually cause massive price spikes over the next couple of months.  Even though crack spreads are falling, we are still one refinery shutdown away from going into deficit production.  Hurricanes are already more common this year compared to last year.  We’ve had three named storms already this season compared to only one last year at this time.  And last season was one of the most active storm season’s in 50 years.  For now, we can enjoy some relief on prices at the pump, but be prepared to jump higher if hurricanes take out the Gulf Coast production.

In local retail news, gasoline and diesel prices continue to trend lower.  In looking at the spot market collapse this week, I expect to see prices at the pump to go even lower next week.

Propane prices continue their stable trend of bouncing along the bottom of low prices.  However, propane inventory data from Canada was confirmed that supplies are 50% lower in the East compared to last year.  This means that if we have to rely on Eastern Canadian propane for a cold winter, prices will be very high.  I still recommend filling your tank now and locking in some gallons for the upcoming season.  Cost averaging is the best form of price protection.  Market timing in these volatile times is luck, not skill.  🙂

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 data released this week is causing much confusion and forcing traders to take pause. For months now, the fear of recession has loomed over the markets.  Analysists have been waiting patiently for earnings and Q2 GDP data to be released that would either confirm their fears or maybe kick the can down the road.  Well, this week was a head scratcher.  Earnings from big retailers showed slow growth and guidance was weak.  Walmart showed slowing sales.  GM was down.  Facebook and other advertising-based tech companies all showed slowing growth and weak guidance. And then the GDP report for Q2 showed almost another 1% contraction, confirming two straight quarters of negative growth to start the year.  By mid-week, most folk were confident in calling the “down-cycle” to continue.  But then on Wednesday, the EIA reported draws on crude oil, gasoline, and diesel.  The draws were a surprise that possibly demand was still intact at current price levels.  Then Ford and Amazon hit their numbers out of the park reversing the negative earnings trend for the week.  Biden and Xi met and are trying to “mend the fence” for China and America to work better together.  Ukraine and Russia struck some food supply export deals.  Europe is starting to get control of their nat-gas situation.  And no one believes that OPEC+ can increase crude production into the end of year.  Basically, market started to shrug off the fears.  Oh, and did I mention that the FED officially raised rates another .75%, confirming the two largest back-to-back rate hikes in over 20 years?  Even the FED announcement on Thursday did nothing to stop the markets grip on positive sentiment.  WTI Crude prices are climbing back to $100/barrel.  Supplies are tight, but we are winding down from high demand seasons across the globe.  Is the rally real, or are we setting up another head-fake going into the end of the year?  I believe the reality of where we are heading will start to flush out by end of September.  Until then, emotions on news stories will run the market.

In local news, gasoline and diesel prices continue to slowly drop.  Unless we have a major refinery issue in the Midwest, I do not expect to see gasoline retail prices above $4/gallon, and retail diesel should remain below $5/gallon.  The foundation is shaky, but it’s much better than last month.  Now we need to hope for a staggered harvest.  A rush-harvest could really cause some supply issues in the Midwest.  But that’s a couple of months down the road.

Propane is continue it’s skip along the bottom.  I can not continue to stress enough the value of propane at current prices.  Propane inventories are not in great shape right now.  We did not build national inventories to levels that I am comfortable with for this time of the year.  If we have a strong corn drying season and a cold winter, propane prices will go up dramatically.  In the past, Canada rail propane has been our savior.  But this year, new petrochemical factories have opened in Canada which will take most of the excess propane that could be shipped to the US.  I am not sounding any alarm bells or asking for panic.  I’m just saying that don’t relax on propane based on current market conditions and past experiences.  If you have not filled your tank this summer, please do so.  And I highly recommend contracting some propane for the upcoming heating season.

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

Best regards,

Jon Crawford

Good afternoon,

After Biden’s trip to Saudi Arabia, oil prices have failed to maintain any rally this week.  Demand erosion continues to threaten markets as fears of recession loom in the US and Europe.  The European Central Bank finally raised interest rates this week. In addition, mortgage demand in the US plunged to a 22 year low.  And to top off the week, Russia reopened their main natural gas line to Europe showing signs that maybe Russia will be unable to economically self-support a complete shut down.  WTI oil prices took a ride this week above $100/barrel but have settled out around $95/barrel for the week.  The Ukrainian “War Premium” is getting close to being wiped out of the futures market.  If oil supplies start to build around the globe, a race back to $70/barrel will be very possible.

As discussed last week, in local retail news, gasoline prices fell below $4 and diesel prices fell below $5/barrel.  I expect gasoline and diesel prices to hold near current posting into next week.  The drop in price is a nice little relief going into the end of summer.  I don’t want to jinx it, but we might have peaked on retail prices for the year.

Propane prices continue to skip along the bottom.  I really don’t believe there is much more downside risk in propane.  However, I do believe there is much more upside risk to propane this heating season.  We highly recommend that you order a summer fill and contract some propane for the upcoming heating season.

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!  I was off last week on vacation so I will try and get you caught up from the past two weeks.  Over the past two weeks crude oil prices have fallen but the price of gasoline and diesel continue to remain high due to VERY tight refining capacity and record exports.  China continues to look at possible lockdowns for controlling Covid.  Interest rates from the FED are going up another 75 basis points.  Economic data is not looking good in the US.  And China/India recorded record imports of Russian crude oil over the past month.  As the FED tries to tame inflation with rate hikes, the economic situation in America is starting to look different.  Home prices have reached their highest average price ever and mortgage applications are dropping.  With the increase in interest rates, people are getting priced out of the market.  But more scary, some people who are building are getting priced out of finishing their homes.  Builders are starting to lower prices on pre-built homes and refinancing is drying up.  I’m not sure we will see 2008 housing crisis levels, but there is definitely something brewing in the housing market.  Couple the housing market data with massive amounts of layoffs at large companies that were scaling up during the stock market boom, and the American economy is starting to change.  Companies remember 2008 so they are starting to prepare “as if” a major recession will happen.  People are now wanting to go back to work and surprisingly the job market is getting tighter in spots.  In other words, the balancing act of rewinding from the past two years is starting to happen.  Where we will land, no one knows.  We’ve never been in a situation where trillions of dollars was pumped into the economy for two years.  The war in Ukraine is not showing any signs of receding and the FED is very hawkish on taming inflation with the threat of recession on the table.  President Biden is focused on brining down gasoline prices, which I have stated for months means nothing to stop inflation.  He has explored giving a “federal gas tax” holiday which leaves holes in the transportation budget to fill.  He’s demanded that gas station owners lower their prices with no understanding of the cost structure.  And he has considered sending “gas cards” to all Americans which is nothing more than “buying votes” and a waste of tax payer money doing that does nothing to solve the problem in my opinion.  Without lowering the price of diesel, nothing changes.  If we can bring down diesel prices, inflation comes down, which increases the strength of the dollar, which in turn will bring down the price of gasoline.  All focus should be on the SUPPLY of diesel, not the price of gasoline.  Unfortunately, we are exporting diesel to markets in Europe and just can’t produce anymore at home.  The President wants oil companies to do more, but he has also told oil companies that their days are numbered.  Oil companies have been reinvesting record profits into solar, wind, and hydrogen projects knowing that remaining in fossil fuels will be difficult long term.  The market is showing opportunities for transition to green energy and the large oil companies will invest.  I am not a “fan” per se of “Big Oil”, but their five year averages on profits does not look crazy and they are diversifying their investments away from crude oil.  But we can’t run before we walk.  We have a long ways to go and the situation won’t change overnight.  But without bringing down the price of diesel in this country, our high inflation, including high gasoline prices, will be here to stay.

In local news, Gov Evers passed an executive order stating that gas stations will be held accountable for gouging the public with high retail prices.  Based on his order, a gas station can not sell gasoline for more than 15% profit margin over their highest price in the 60 days prior to the order.  However, the gas station can adjust based on replacement cost.  The order is ridiculous in massive magnitude.  At no point in the past two years has any gas station in the state sold gasoline for more than 15% profit margin.  In addition, our cost changes every day so enforcement is simple to see.  Gas stations do not make that much money selling gas. But their credit card costs have skyrocketed.  Gov Evers also stated that the order applies to upstream supply.  We have spoken to the companies that supply the state with gasoline and no one is willing to open their books to the government.  Therefore, if at any point, selling a gallon of gasoline to a distributor in Wisconsin would be a violation, they will just move the sale over to the Group Market and bypass Wisconsin.  The main suppliers of Wisconsin have made it clear, that they can meet their contract obligations, but any spare capacity will be moved elsewhere if violations were to be possible.  Therefore, the executive order could cause a gasoline shortage in Wisconsin.  The governor never spoke to our State Association which I am apart of, or even DATCP (the enforcement agency) before making the order.  The order is a political move, once again, trying to place blame on someone for high costs.  Gas station owners have been through hell and back the past two years, and are now dealing with a critical driver shortage and running out of gas during the high demand season of summer.  Wisconsin gas station owners did not need the extra headache at this time.

Propane prices continue to be “steady as she goes.”  The propane market is saying loud and clear that we are skipping along the bottom for prices no matter how low crude goes right now.  In order for propane prices to really drop, crude oil will need to go down almost $20/barrel and crop drying demand will need to be low in demand.  If you have not ordered a summer fill, I highly recommend topping off your tank at this time.  Next season’s contracts will be released right after 4th of July.  Look for mailings to start after the 4th, or call us after the 4th of July to lock in your pricing.

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

Best regards,

Jon Crawford