Geopolitical Nightmare

Good morning,

I was out of the office for a week and it’s amazing how volatile the crude market is right now. Two weeks ago we were just about to break back down below $60/barrel on WTI. Two weeks later we are sitting above $65/barrel! In fact, the last three trading sessions were the largest increases on WTI in trading since November of 2017. Most of this was driven by a surprise drawdown in crude inventory here in the U.S. as well as geopolitical tensions in the Middle East. Right now Saudi Arabia is demanding that Iran be curbed further from nuclear development or else they will develop a nuke. The Crown Prince is meeting with Trump to decide how to proceed with Iran. Some are thinking that the tensions could lead to sanctions on Iran and diminish Iran’s output causing world levels of crude inventory to go into deficit, riding the back of Venezuela’s significant decline. However, I do not believe that Iran’s customers would follow through with sanctions, considering that they like the current deal with Iran. Since Iran was agreed upon to open its doors for crude sales, China, India, and Europe are now buying more crude from Iran than ever before. With Iran’s steep discounts and trying to gain market share if possible, I do not see these countries following a lead by the U.S. in calling for sanctions. This is the largest geopolitical development since the middle of the Syria conflict when Russia and the U.S. got involved. Although I think this is significant news, I do not think there is enough “news” to push crude much higher. The inventory projections from both the EIA and IAA change every week. I agree with the thought that WTI crude will continue to trade in the $60-65/barrel range. However, my call of a “calm spring” for planting season is now a bit shaken. I am now urging some to cover costs in spring just a bit to be safe. And the last bit to remember is that we are coming to the end of Q1 and if crude prices hold, some traders might “ring the register” on a nice start of the year bump in profit and move money elsewhere. That would not be the first time we see the “selling in March” scenario.

In local retail news, gasoline prices have spike due to the change in RVP for summer. I believe that the retail price of $2.49/gallon will be about the peak for now. Where we go from here will all depend upon crude pricing. Diesel prices are jumping all over due to market volatility and street price volatility unwinding from winter blends. As with gasoline, the current prices will probably hold unless crude can find some legs and break out to the highest close of the year.

Propane has bounced back up off its lows with the increase in crude. We are still hoping to be able to lock in prices for next heating season very close to what we were at this year. Right now there is not much value in future prices until the market can digest this recent uptick in crude prices and the unwinding of winter heating demand. More information to come in the following months.

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

Best regards,

Jon Crawford – Pres.
Crawford Oil and Propane

Almost Back Below $60

Good morning,

Not too much to report this week. WTI crude oil is dancing with breaking back down below $60/barrel. A stronger dollar and continued increases in crude production and products in the U.S. is putting pressure on prices. Although OPEC is really pushing the success of their agreed upon agenda, I am skeptical the agreement will hold for the rest of the year. The good news is that if we continue on this path, we will have descent retail prices across the country for the year which is good for the economy. I think that we are back in a pattern where any bit of news is going to push us either to $59/barrel or $64/barrel on WTI. So until anything drastically changes, we are going to dance back and forth for a while.

In local news, we are seeing diesel prices starting to fall with the price of crude as well as major winter blending components coming out of the market. Gasoline prices are holding a bit steady with a small concern on supply going into spring with refinery maintenance. I don’t see any major price spikes in gasoline ahead, just not as big of a drop as expected in relation to crude.

Propane prices are continuing to drop with the winter starting to wind down and major deep freezes behind us. I expect contract prices and board prices to even up by the middle of April. As far as next year goes, we are seeing prices for next winter being very good in comparison to this year. Contract information and summer fill prices will be released sometime after June. More to come.

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

Best regards,

Jon Crawford – Pres.

March Correction Has Begun

Good morning,

As I stated before, I believed the claw back on crude was too quick and would correct at some point in March. Well, we are at March 2nd and WTI is close to breaking back below $60/barrel! As I like to say, what a difference a week makes! Oil production is continuing to rise and stocks are building again in the U.S. going into the spring maintenance season. OPEC is getting wavy on commitments due to the U.S. has Russia in their sights to overtake on production. Also, our dollar is finally gaining back some strength from the recent sell off a couple weeks back. And just like that, crude prices fall $4/barrel. I don’t think we are out of the woods yet. Crude might tumble a bit more, but I feel that crude will trade in the $55-$60/barrel average range for maybe the year if all components stay constant.

In local retail news, I am suggesting that all farmers lock in some portion of fall fuel needs at this time. We have some excellent prices and I believe one should hedge the supply crunch that always occurs in October and November due to the harvest and refinery maintenance. Gasoline retail prices will remain somewhat in the current range due to the change in RVP for summer. This change adds a premium cost to gasoline. As the temperatures rise and costs of product fall, I expect to see diesel prices at the pump come down a little bit. Most of this will be from retailers no longer having to blend products with #1 diesel to meet winter usage needs.

Propane prices are falling off as predicted. We are not locking in next season contracts for customers yet, but the numbers are looking very good for next heating season in comparison to this year. We suggest that all customers fill their tanks this summer and lock in prices when available this summer. More information will available in the coming months.

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

Best regards,

Jon Crawford – Pres.

Nothin’ Gonna Keep Me Down

Good afternoon,

After entering into correction, WTI pricing has whipsawed back to above $62/barrel. With the dollar recovering from the low and production increasing in the U.S. and Nigeria of OPEC, many of us are scratching our heads at the quick claw back in crude pricing. In addition, Iraq is investing in more production, and if Nigeria is truly cheating on quotes, I wonder how much longer others will hold out. Russia has been stomaching their quota but their players in the country really would like to increase production. I’m thinking that maybe crude recovered much like the DOW. There was still money left on the table from the tax cuts and record profits to throw into the market when the first round of selling triggered across equities and commodities. At this point, I’m sticking with what one trader called earlier this month “the appetizer before the meal.” I really do think that crude will come back down below $60/barrel one more time this spring, possibly in March. If the Fed raises rates in March, pressure on crude will mount. Also, traders will have to decide if they want to cash out of crude in Q1 and move the money into something else.

In local news, retail prices are all over the board. In a 45 mile radius from Madison, retail prices on gasoline have ranged from $2.35 to $2.49. Diesel prices are starting to ease a bit as #1 ULSD blends fade out a bit. Just as prices were going to break into the possible teens on gasoline, crude clawed right back.

Propane retail prices have a eased a bit from the highs. We expect to see prices go down from here for the rest of the heating season into spring. Summer fill and contract information for 2018 will be available closer to June/July.

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

Best regards,

Jon Crawford – Pres.

Game of Tug and Pull

Good morning,

Crude oil finally unwound from its highs last week. Over $10/barrel came off of the WTI crude oil contract last week due to increased production in the US and the strength of the dollar. Futures prices dropped dramatically and crossed our strike price of $60/barrel. This week, crude prices rebounded a bit on a weaker dollar and news from Saudi Arabia that they plan to keep production low even though the US overtook them in production. The US also started building inventories of products going into the spring. In addition, the US also shipped their first “super-tanker” of crude. And some of our crude oil is showing up in new countries meaning that our customer base is growing. I do not believe that we bottomed out last week. I believe we will see a tug and pull between $59-62/barrel for sometime. If the dollar index starts to move higher and hold above 90, I don’t believe WTI crude will hold above $60/barrel. Lots of talk going on and rebalancing of hedge fund monies right now, so hold on because it’s going to be bumpy for a few weeks.

In local retail news, gasoline and diesel prices continue to drop. If you are considering locking in fuel prices for this year, now is good time to start thinking about it. I am still advising clients to lock up prices for the fall and maybe let the spring ride. Feel free to call me for more info.

Propane prices rebounded off of the lows due to a slight increase in demand. However, I do not see the recent price increase affecting retail prices. As of right now, we are seeing prices for next heating season being about the same as this season. More pricing info will be released this summer.

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

Best regards,

Jon Crawford

Crude Tumbles with the Stock Market

Good morning,

As I have been saying for sometime, WTI would begin to correct towards the end of January or in February. The correction has begun and is following the stock market. WTI prices have fallen from near $70/barrel down to $60/barrel. I believe that there is still some hedge fund money sticking around and eventually we will fall through the $60/barrel support level. The value of the dollar has been increasing which is also putting downward pressure. In addition, the U.S. crude oil inventories are starting to build just as I predicted. Across the globe, Saudi Arabia is arguing amongst themselves on where and how to release their IPO of Aramco. I believe that this will eventually cause Russia to become impatient. I think Russia was holding out on production increases as long Saudi Arabia released their IPO this spring. I guess we will wait and see. If the OPEC deal falls apart, I think you will see crude tumble down again.

In local retail news, I expect to see both gasoline and diesel prices start to drop.

Propane prices are steady and supplies are looking good for rest of winter. I am expecting prices to be lower by March. In addition, I also think we will have plenty of supplies for some good summer fill prices. And prices for next year’s contracts at this moment are looking to be close to this year’s prices. So pretty much good news all around for propane right now. More information will follow towards the end of winter.

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

Best regards,

Jon Crawford – Pres.

Someone’s Gonna Blink

Good afternoon,

Lots of big news this week. The dollar index continues to hold on to a floor right now which is buoying WTI crude prices near $65/barrel. OPEC is showing very strict compliance to their cuts, but mostly being held up by Venezuela’s drastic drawdown in production. In the U.S., crude production topped 10MM bpd for the first time since 1970. We have now set a record for daily production and surpassed Saudi Arabia as the number two producer in the world! In addition to the record, the industry sees no signs of slowing down at these prices. The EIA weekly inventory report showed a build in crude for the first time in eight weeks which created an initial dip in the market, but then the market reversed due to the existing exuberance that demand will keep outperforming production. Also in addition, we still have the record, yes record, of hedge fund long positions on crude oil in the market.

So where does all this lead? I am seeing a showdown between hedge fund managers and OPEC. The U.S. oil industry has made it quite obvious that they are not going to slow down. The oil industry is about to go into the refinery maintenance season which will decrease crude demand causing supplies in the U.S. to build. If the dollar index starts to increase in value, then the price of crude will start to decline. These situations are going to pin the hedge fund managers and OPEC against one another. If OPEC increases production by surprise, you will see the market collapse and the hedge fund managers will lose out on the top and hope to sell at a good time during the falling of the knife. If the hedge fund managers “ring the register”, then the price of crude could drop about $10/barrel and both the U.S. and OPEC get pounded on price. But regardless, there is very little true economic support for crude at these levels. To me, the market feels like it’s trying to get WTI to $70/barrel. OPEC is sitting back waiting to see if they should force the hedge fund managers to sell, or enjoy some higher prices for everyone. In other words, someone is going to blink. It’s only a matter of time. And when they do, crude will fall fast and hard.

In local retail news, gasoline and diesel supplies have been very ample throughout winter. No disruptions or pipeline issues so far. Gasoline prices hover near $2.49/gal and diesel prices are around $3.05/gal depending on which winter blend is used in the fuel. I expect these prices to continue in the near term until we see some major changes in crude prices.

Propane has been staying pretty steady. We are still confident that our current price is probably the highest for the year. We hope to see prices relax by the end of February. The weather is now the main driver for propane. We officially have enough propane in the country to make it through the rest of winter. We are starting to track next year’s prices and so far we are seeing numbers not too far off from this year.

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

Best regards,

Jon Crawford – Pres.

Tanking Dollar Causing Crude to Rise

Good morning,

WTI crude oil prices continue to rally on a tanking dollar thanks to the inconsistent comments by US Treasury Secretary Steve Mnuchin. The comments caused one the largest one-day drops in dollar value yesterday which in turn caused WTI crude to rally over $1. As the strength of our dollar declines, commodities such as WTI crude will rise in cost causing higher prices at the pump for gasoline and diesel. In addition to the tanking dollar, U.S. crude oil inventories declined for the 9th straight week. But there is much more to that story. U.S. inventory levels of gasoline and diesel are staying at high levels. Our exporting of crude is staying consistent at 1M barrels/day, but our production is increasing. Basically, we are warming up for a potential snap in crude inventories. If OPEC breaks from cuts or Venezuela ramps up production, there is not enough demand in the world to clean up the surplus. Pair that with the MOST hedge fund long positions EVER in WTI futures history, and we are setting ourselves up for a massive pop. I think $70/barrel on WTI will be the breaking point unless something happens sooner. The entire crude market feels like a boiling pot of water ready to boil over. Looking at technicals, I’m still seeing WTI crude around the $55/barrel mark. I am still holding my position that it’s only a matter of time before the hedge fund managers ring the cash register and move their money somewhere else.

In local retail news, as stated before, the tanking dollar is causing gasoline and diesel prices to rise. Diesel prices with proper winter blending are holding above $3.00/gallon, and gasoline prices are holding above $2.45/gallon on average. Unfortunately, I do not see any give on these prices until the dollar recovers or the futures positions exit the market.

Propane is on course to see lower prices in February if the temperatures stay warm. Right now prices are still well above contracts, so customers who contracted are saving money so far this winter. We are not making any predictions on propane prices for summer or fall of 2018 until we see some direction on the dollar and WTI.

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

Jon Crawford – Pres.

Same Old, Same Old

Good morning,

Well, not much has changed since last week. The news on the open market is fairly calm. However, hedge fund managers are enjoying making their predictions of where WTI might head this year. My feelings are that WTI is over bought. There has not been this much hedge fund money on long position in the crude market since 2013. No wonder all the news is trying to “push” the market higher! I’m not sure without a major even there is much steam left in the crude rally. Russia is starting to float the idea of leaving the OPEC deal. When that event would occur is up in the air. Possibly at the June meeting or sooner is my guess. Now that prices of crude have gone higher than anticipated, I am watching for someone in OPEC to start the old fashioned cheating game. In addition, if we can make some moves to get the strength of our dollar moving positive, crude will also face another headwind. Even though crude inventories continue to fall in the U.S., production is starting to grow again. Finished product inventories are above average, and I expect to see some builds in crude inventories soon. I’m just not sold that we are truly at these prices based on current market conditions. I guess time will tell!

In local news, gasoline prices bumped up a smidge due to local Chicago market differential jumps. Diesel prices have continued to remain in a tight range. Propane prices ended up climbing a small amount due to some unanticipated supply disruptions. However, due to the warmer weather and forced allocations, supply is starting to ease back to normal. I am thinking that we are at about the peak price for the year. As I have said before, if warm weather continues into February, I expect to see propane prices fall. Exports of propane are not holding up to what was expected and demand is actually off a bit.

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

Best regards,

Jon Crawford – Pres.

Crude Exuberance

Good morning,

Well, the stock market exuberance bug seems to have found its way into the crude oil market. Crude prices continue to climb with bearish fundamentals forming. At the moment, geopolitical tensions have eased in major oil production areas. Asia has cut imports on crude due to high costs. This will cause imports of refined product to increase, but the world is very rich with refined product at the moment due to great refining margins from the U.S in particular. The U.S. continues to move in the direction of more production and increasing refining capacity. Also, the fundamentals on the crude oil charts are shaping up exactly as they did in September 2014 right before the November bloodbath sell off. The ratio of long positions versus short has hit levels not seen since 2014. Therefore, the recent rise in price is based somewhat on an emotional movement. We all know that OPEC will not extend cuts any further. And some members are starting to complain that prices are now TOO high. Imagine that! So the first person to blink in the coming weeks could trigger up to a 15% sell-off in my opinion. Personally, I believe that WTI crude oil is about $10/barrel over bought. I’m thinking that February could be an interesting month. More to come on this in the following weeks and month.

As crude prices continue to climb, prices at the pump are following. Since the start of the year, base cost on gasoline has increased almost 9% causing gasoline prices to move towards $2.39-2.49/gallon. Diesel retail prices have also climbed, especially as winter blending elements such as #1 ULSD have increased in premium. Diesel retail prices for the most part are over $3.00/gallon.

Propane prices have steadied since the three week cold snap. Propane exports are looking to dry up in February due to cost fundamentals and lack of demand in Europe. There is now a possibility of seeing propane retail prices drop in February. It’s amazing how fast the propane situation can change since we now can export up to 1MM barrels/day of propane. If the exports dry up, we can build inventory quite quickly if the winter is mild. The exporting game has become quite the wild card in the U.S. propane trade.

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

Best regards,

Jon Crawford – Pres.
Crawford Oil and Propane