Leading off with a market commentary from Darius Lechtenberger from Flashpoint Energy Partners:
“WTI crude oil and refined product prices are down sharply again this morning. In looking at today’s bearish menu, the main course is the same as yesterday with rumored to be “productive” Russia/Ukraine negotiations and Russian crude oil continuing to flow despite sanctions. Although, a couple of side dishes have been added: a new COVID outbreak in China and a two-day Federal Reserve meeting starting today in which it is expected that interest rate hikes will be announced. What is crazy about this recent drop in energy prices is that the supply/demand fundamentals remain quite bullish with petroleum inventories falling to record lows and demand recovering to pre-pandemic levels. Especially concerning is the drastically low level of distillate inventories. Diesel is the fuel of business and it is the workhorse of the global economy. John Kemp of Reuters said the shortage of diesel is the most acute since the 1970s. Propane prices joined the price slide yesterday as winter comes to end. Like distillates, propane is also facing record low inventory levels with concerns about the potential for increasing exports to help supply Europe in the event Russia shuts off European energy supplies. This energy price pullback looks like a buying opportunity.”
I echo Darius’ sentiments relative to the steep market pullback…it would seem that much of the ‘war premium’ that had been priced into crude oil has been erased…despite the war not ending, and despite the very bullish underlying fundamentals. I also agree that this could be a solid buying opportunity for next winter, to either begin your cost averaging strategy or adding to it.
Crude oil is trading below $95/bbl as of this writing, after closing at $103.41 yesterday. Propane values are off steeply in the front month, but less in the outmonths. Propane’s value to crude oil right now is as low as its been since June of 2021…again, all of this is a bit surprising given that propane and crude oil fundamentals are still bullish…but, you know the one about gift horses. Of course, it has to work for your business.