I would like to first wish everyone a happy Easter Weekend and safe travels! Well, it was nice while it lasted… Crude oil prices dropped to pre-invasion of Ukraine levels for one day on Monday. The continued drop in prices was fueled by the group announcement from IEA countries and the US to release 270M barrels of oil from strategic reserves, China locking down with Covid cases, and the FED raising interest rates with record inflation. And then on Tuesday, prices whipsawed higher and never returned. It was nice while it lasted… Since Tuesday, crude oil prices have gained over $10/barrel. OPEC+ announced that demand will far outstrip supplies and that they have no intention of changing course on production quota increases since the rest of the world wants to try and flood the market with reserve oil. In addition, China is starting to ease shutdowns a bit. The US inflation is seeming to peak. And the EU is planning to official ban all Russian petroleum products. Wow… what a difference a couple of days makes. Crude oil prices were FINALLY moving to what I call a manageable level. We were not out of the woods, but the price levels on Monday would have at least made a difference in the near term. Instead, WTI crude is now firmly positioned above $100/barrel and nothing seems to be working on keeping prices lower. I believe there are only two ways out of the mess were are in with high crude prices One is to have peace in Eastern Europe and that seems years away. And the other is to watch the world economy go into major recession. Unfortunately, a world economic recession seems more possible now than it did a month ago. Although inflation might be peaking in the US, that doesn’t mean inflation will go down. I could see inflation hover at these current levels for quite a long time, even with rising interest rates. At the end of the day, I don’t see a soft landing out of the world mess we are in.
In local retail news, due to the increases in crude pricing this week, gasoline cost soared over 40 cents/gallon and diesel cost well over 50 cents/gallon. I expect to see retail prices at the pump go much higher. Retail gasoline will again be approaching $4/gallon and retail diesel is going to move towards $5/gallon. President Biden made a “feel good” executive order this week allowing the sale of E15 (gasoline with 15% ethanol) during the summer months, removing the EPA vapor pressure violations. Biden claims his action will lower the price of gasoline by 10 cents/gallon at the pump saving Americans millions of dollars. His statement could not be further from the truth. There are only about 2,500 gas stations in the country that sell E15 out of about 150,000! In addition, a station just can’t put E15 into any tank and fueling system. There are strict requirements and limitations on equipment. And, E15 gets worse gas mileage than E10 or conventional gasoline, so you end up buying more fuel in the long run over the course of a year. And with corn input costs going through the roof and a decrease in overall corn acres being planted, an increase in ethanol demand will increase ethanol prices! The situation could possibly cause ethanol price to be higher than gasoline by year end! So basically, once again, the gas station OWNERS are being blamed for high gas prices while Visa/Mastercard raise their credit card fees to all gas station retailers forcing them to increase their sale price to the consumer. Gas station owners continue to face increased cost on every portion of their business, yet somehow continue to take the blame for the prices at the pump. Once again, please go easy on gas station employees. They are doing their best managing the dizzying cost increases and 50 cent/gallon cost swings on gasoline/diesel weekly.
As you might expect, with crude prices being lower on Monday, propane cost finally dropped a bit. But, just like gasoline and diesel, as crude prices roared higher throughout the week, propane prices followed in tandem. I continue to be skeptical of propane prices getting much lower this year. Just like natural gas, propane is under the microscope. If the US is going to increase supplies to Europe permanently, we need to keep production strong at home. I worry that our altruistic actions could lead to very high prices on natural gas permanently and higher than normal prices for propane. Natural gas prices are higher than propane in relation to BTU’s. So at least for those on propane, you are getting more “bang for your buck” while heating your home. We are hoping to have next season’s heating contracts out by end of May. As a reminder, if you still have contract gallons remaining on the current heating season, please call to receive those gallons. Our current heating contracts expire at the end of April.
As always, if you have any questions, comments, or concerns, please feel free to give us a call!