We begin with a note from Flashpoint’s Darius Lechtenberger:
“WTI crude oil and refined product prices are screaming higher as Russia appears to have started their invasion of Ukraine. President Putin ordered troops into two Russian-backed separatist territories in Ukraine and hinted at the possibility of a wider military campaign and laid claim to all of Ukraine as a country “created by Russia”. It looks like the first domino has now fallen and sanctions will soon follow. Germany is going to “reassess” the certification of the Nord Stream 2 natural gas pipeline in response to Russia’s actions toward Ukraine. Germany meets about a 25% of its energy needs with natural gas and roughly half of the natural gas used in Germany comes from Russia. It is apparent that China has emboldened Russia by agreeing to pick up any “extra” Russian energy surpluses that were turned away by Europe. The showdown to ensue is if sanctions from the West will hurt Russia as much as Europe will be hurt by not receiving Russian energy supplies. Russia obviously thinks it can break any European solidarity associated with sanctions. Propane markets were closed yesterday in observance of the President’s Day Holiday, I expect propane prices to be quite strong this morning in reaction to the latest geopolitical developments. Low inventories and lingering cold weather will also provide support to prompt propane prices. It will also be interesting to see if previously cancelled March cargoes get reclaimed?”
Since Darius wrote the item above, propane markets have opened and prices are skyrocketing. Crudes close at $91.07 on Friday, the most recent trading day, and traded over $94 at one point this morning, but is back below $93/bbl right now.
Propane values closed around $1.2950 in Conway last Friday and just over $1.3300 in TET. This morning, both major supply hubs have seen deals done north of $1.4000. Obviously things are moving quickly right now and prices could keep rising or fall off fast…such is the case with this type of geopolitical unrest.
Here are some top of mind risk factors that are impacting energy values right now:
-War in Ukraine
-Russia weaponizing natural gas supplies
-OPEC+ pleased with rising oil prices
-OPEC with less spare capacity than at any time in the last 50 years
-Rising inflation in the United States and around the world to levels not seen in four decades
-A reluctant desire by central banks to raise interest rates to combat inflation
-Already high (and now rising) energy prices coupled with inflation
-Unprecedented global supply chain disruptions, which may get worse due to conflict
-Civil unrest (or some degree of discomfort) in many major countries
I am sure there are others, but these are the primary factors that we can see right off. Volatility is something we have been talking about for the past year…and we have more volatility vectors in the marketplace right now than we have had in a while.
We had the 2008 financial crisis, we had crude well over $100/bbl around the same time, we had the second Gulf War and the first Gulf War, inflation and high interest rates in the 1980’s and the Oil and Gas crisis in the 1970’s…but right now sort of feels like we have a buffet of all of those risk vectors to deal with at the same time.