First Time for Everything

Good afternoon,

I hope this message finds everyone safe and well.  The past five days have been the craziest trading days I have experienced since the run-up in price of 2008.  Since March, crude producers and refiners in America ceased to stop production of product.  I think many felt that something would give in the coronavirus pandemic, OPEC would save the day, or Trump would purchase a massive amount of products for the US Reserves.  Unfortunately, none of these events came into play and by the end of April, many traders were starting to hold paper contracts for May with nowhere to sell the product.  I wrote last week that strange things might happen with expiration of the May futures contract.  I don’t think anyone thought we would experience what happened.  The day before the expiration of the contract, a ton of May delivery contracts were sitting out there with no home for storage.  As the contract price of WTI collapsed, I thought, “will the contract go negative for the first time in history?”.  Well, it did.  Once the contract went to -$0.03/barrel, I took a snap shot on my phone to mark the occasion.  But then the contract went to -$0.63, then -$1.44, then -$2.56, then $-5.22, all the way to -$38.46/barrel!  The WTI contract has never traded negative since the beginning in 1983.  What this means, is that any trader holding May crude contracts was going to have to PAY someone $38.46/barrel to take the crude.  The losses were unimaginable.  But in my opinion, totally explainable and rational.  American producers did not cut as fast as they needed to.  For whatever reason, they gambled and lost.  I believe these were all calculated business decisions that unfortunately needed to happen to force the industry to slow down.  Once the June contract started, the market started to re-balance.  And now on Friday, we are back to some sort of equilibrium.  But don’t hold your breath.  WTI crude prices are one large bad trade away from collapsing again.  Until we see demand pick up in the country and the rest of the world, crude oil will experience the most volatile times in trading history.

In local news, last week I talked about not getting too used to gasoline retail prices under $1.00/gallon.  Well, it’s over.  Based on gasoline costs, by the end of next week, Wisconsin should be back above $1/gallon on gasoline.  Gasoline prices shot up almost 30 cents this past week as the Chicago spot market gave up it’s differential advantage to the Group.  Diesel retail prices remain low in our market, but Chicago differentials are cheap compared to the Group.  So just like with gasoline, sometime in the next couple weeks, diesel costs will probably jump dramatically in our market.

Propane prices are continuing to rise since the lows hit in early March.  I have been telling everyone that the time to fill your tank is now, not in the summer.  If crude prices stay low, there will be very limited production of propane which is going to cause propane prices to rise even further.  There is a possibility of supply reliability going into fall depending on how much production is cut in the US and Canada.  For now, I suggest that everyone fill their tanks and wait for contract prices this summer.  Do not fall into the trap that lower crude and gas/diesel prices mean cheaper propane is on the way this summer!

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

Best regards,

Jon Crawford

Devil in the Details

Good morning,

I hope this message finds everyone safe and healthy.  Since OPEC+ announced a deal to cut production by a record 9.7M barrels/day, crude prices have found some floor support.  Many people are rejoicing at the low price of gasoline and diesel in the US right now.  However, demand is down nearly 50% and spot prices for gasoline and diesel are primed for a major jump in the coming weeks.  The devil is in the details of the current market condition.  Unless the US cuts oil production dramatically, WTI crude prices will continue to tumble.  However, we are seeing Brent prices rise along with refined products and propane.  How could this be?  Well, Brent crude is what we import for East Coast refineries.  Since Brent production is being cut, base cost is starting to increase.  Much of the crude in the Midwest comes from Canada.  Canada is announcing almost 25% reduction in production.  But the price of WTI (crude harvested in shale plays) is dropping, and dropping fast.  The market is telling American producers, if you don’t turn off the wells, WTI prices will fall to single digits.  So for now, we are seeing WTI break away from Brent.  I expect the spread in price between WTI and Brent to grow dramatically over the coming months until the US cuts at least 25% production.  China’s appetite for crude is starting to come back which is helping alleviate some of the initial crude oil glut, but we have a long way to go.  The only way crude prices pop like a rocket is if a miracle treatment for the coronavirus hits the market and moves economies to a V shaped recovery instead of a U shaped recovery.

In Wisconsin, some areas are enjoying gas prices below $1/gallon.  My advice, don’t get too comfortable with that price.  Chicago Spot Market, which is the basis for the majority of gasoline purchased in Wisconsin, is trading at a 42.5 cents BELOW New York Harbor Contract (the basis for gasoline prices).  In other words, our gasoline is 42.5 cents/gallon cheaper than the base for gasoline.  The fall in pricing differentials is due to a glut of gasoline coming out of the Chicago refineries the past month and a half.  The glut is starting to diminish as refineries cut utilization projections going into June.  Our neighbors in Minnesota and Iowa saw their cost of gasoline rise 20 cents in two days!  I believe that when the June contract for Chicago comes into trade next week, we have a potential to see gas prices rise 20 cents/gallon in our market.  So for now, enjoy the cheap gasoline while it lasts, but don’t get too comfortable.  Diesel prices are remaining very low, but they also have about 20 cents/gallon to give up based on differentials.  I’ve been telling all farmers to fill up now for planting season.

Propane prices reached a bottom in pricing back in March.  Prices have been slowly rising since and I don’t expect to see any cheaper pricing in propane for the remainder of the year.  Propane supplies are very tight due to the lack of production in Canada and the US.  In addition, exports remain at RECORD levels to this day.  Therefore, the glut of propane in our country is already starting to dwindle.  I believe that prices for delivery today will be cheaper than in the summer.  I am advising all customers to fill their tanks now and contract for next year.  At this time, propane prices have a potential to be very volatile and risky for index blowouts.  If you are waiting for a summer fill, I believe the time is now.  There is much more upside risk in propane than downside.

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

Stay safe and be well!

Best regards,

Jon Crawford

Happy Easter

Good morning,

Rather than a usual update on the markets and the coronavirus, I just wanted to take this moment and wish everyone a safe and happy Easter weekend.  There is so much going on around crude oil and the coronavirus, but I think taking a step back for Easter weekend is needed.  We are closing at 11am on Friday and Monday so staff can enjoy a little more time at home.

I will be in touch again next week with updates around the G20 Energy Ministers meeting and the proposed cuts to crude production.  Also, there are some interesting developments happening with propane supplies and the upcoming season.

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

Be safe and be well!

Best regards,

Jon Crawford

Update: Crude Carving Out Bottom

Good morning,

I hope this message finds everyone safe and well.  I know the past few weeks have been very difficult and scary at times.  I also know that we are not out of the woods yet.  Crawford Oil and Propane is continuing to do everything we can to operate safely.  Our services are in full operation, but with a few changes to help with stopping the spread of the coronavirus.  We support everyone during this challenging time and hope everyone stays safe.

Crude oil is starting to carve out a bottom as Saudi Arabia and Russia work to cut production.  Rumors are also floating that the US will possibly cut production.  From best estimates, more than 10-15M barrels/day need to go offline to balance the demand destruction in April.  We are about the experience the largest drop in oil demand ever.

Retail prices on gasoline and diesel have also balanced out around the market.  I do not expect to see gasoline or diesel prices go much lower as long as OPEC, Russia, and the US cut production.  If the countries fail on a deal, single digit crude prices are possible.

Propane prices are actually firming up.  There is a potential for summer fill prices to be higher than today’s price.  We are actually encouraging everyone to take advantage of these current prices.  There is more upside potential in propane prices than downside.  Next season’s heating contract prices will be released sometime this summer.

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

Best regards,

Jon Crawford

Be Safe and Be Well

Good morning,
 
I just wanted to reach out and wish everyone a safe weekend. I know that days are very difficult for many people right now. All of our lives are turned upside down and fear of the unknown grips many of us daily. I know that I have had my many moments over the past two weeks.
 
Please know that our company is doing everything in our power to be safe and be able to deliver products through this difficult time. We are doing our daily best to support each other within our company and our families at home as well. We are also doing our best to stay isolated outside of work to ensure the lowest possibility of spread within the community and our company.
 
If you have any questions, comments, or concerns, please feel free to reach out to us.
 
Once again, be safe and be well!
 
Best regards,
 
Jon Crawford

UPDATE: Status for Crawford Businesses

Good morning,

I wanted to update everyone on where Crawford Oil and Propane is at with handling the unprecedented novel coronavirus situation.  Our thoughts and prayers are with everyone as try to ensure that everyone stays safe and healthy.  Crawford Oil and Propane is considered Essential Services for the State.  So right now, we are not anticipating any shut down of our delivery service.  However, we are making some changes at all our properties to make sure we operate as safely as possible.

Starting immediately, our office will be closed to all customers.  Payments can be mailed or done online.  You can also call the office and make arrangements over the phone.  We apologize for the inconvenience, but we feel it is necessary to stop the potential spread within our office staff and drivers.  Drivers will also no longer be able to accept payments on the truck.  We are practicing safe social distancing of six feet.  All payment arrangements can be made directly online, through mail, or feel free to call our office.  Our hours of operation are remaining the same, but could change in the future.

Our two gas stations are continuing to stay open and will do so with limited staffing for the time being.  We are also limiting hours of operation and the offerings available in the store.  We apologize for the inconvenience but we feel the changes are necessary to combat further spreading the virus.

The situation is changing day by day, and sometimes hour by hour.  I will continue to keep you updated as best I can.  For now, I ask that everyone take care of themselves, have patience, and know that everyone is doing the best they can to get through this situation.  I know many people are scared and have a lot of questions.  We all do and are all in this together.  But I believe that we will get through this and come together stronger in the end.  I will continue to keep you all in my thoughts and prayers.

Best regards,

Jon Crawford

COVID-19 Update

Good morning,

I know that this message finds many of our customers scared, confused, and anticipating answers.  Please know that Crawford Oil and Propane is taking all necessary precautions recommended by the CDC and Gov Evers here in Wisconsin.  Please take a moment to read up on the CDC website to best stop the spread of the virus.  We can calmly work together to stop the COVID-19 spread and hopefully watch this virus leave us as quickly as it came.

https://www.cdc.gov/coronavirus/2019-ncov/index.html

 

 

 

COVID-19 and Russia

Good morning,

The markets have been on the most volatile roller coaster possibly since 2008.  Crude oil prices have traded in a range of over $6/barrel all week.  The main driver has been the potential for demand destruction with COVID-19.  As prices fell this week, the FED  made a surprise announcement to make an emergency cut to interest rates, the most since 2008.  The announcement sent WTI crude prices higher for a bit but leveled off around $47/barrel.  OPEC yesterday announced an emergency cut of additional 1.5M barrel/day production cut which sent prices much higher for the day.  OPEC is trying anything to keep prices from falling off a cliff.  But the markets calmed after learning that Russia might not agree to the cuts.  This morning, Russia announced they will not comply with the proposed cuts to production.  WTI broke through the support level of $45/barrel and fell lower to $43/barrel on the news.  Basically, we are in a cycle that no matter what anyone tries to do, COVID-19 rules the day and all markets believe we will experience the worst pullback over the next few months probably since 2008.  In addition, COVID -19 could return in the fall with vengeance, which is why the race to a vaccine is so important to stabilize the world wide fears.  For now, regardless of how these situations turn out, we are preparing for lower prices on crude for longer.

Retail prices on gasoline and diesel moved lower this week along with the markets.  If we do not experience any positive news with COVID -19, I could see retail prices on gasoline fall below $2/gallon.

Propane prices are not being affected by these markets.  Propane is working on strict fundamentals for the moment.  There is a lot of propane in inventory, and prices just can’t go much lower or the product will be burned off through the petro-chem facilities.  For now, we can enjoy lower propane prices probably for the next year.  In addition, winter is winding down.  At this point in time, we are currently 10% colder than the warmest winter on record, but 10% warmer than last year’s winter.

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

Best regards,

Jon Crawford

Market Bloodbath

Good morning,

The spread of the coronavirus has taken all markets by storm and entered into correction territory.  No matter what any true market conditions are appearing, the markets have sold off at the highest capacity in one week since 2008.  Crude prices are down to over four year lows.  The massive sell off is creating potential future buying opportunities, but no one knows how long this could last.  For right now, it’s sit back and watch the falling knife.  However, I would like to point out, that in my opinion, there are some signs of supply tightness in the diesel market and no matter how low crude prices go, diesel might be starting to form a bottom.  Little early to call, but it’s something I am watching.

Local retail prices are not able to fall fast enough.  I expect retailers will slowly lower prices to make up for losses on the last run higher.  At the rate we are going, gas prices below $2/gallon are not out of the question in the coming week or so.  Diesel prices will also continue to come down.  At this point, we are at the potential for the lowest cost on diesel for planting season in many years.

Propane prices have not followed along with crude in the bloodbath sell off.  Propane prices are bouncing along a bottom sweet spot.  If they go any lower, the petro-chem companies will buy up everything in inventory, and I mean everything.  So traders are not throwing in the towel just yet.  However, I can safely predict that I believe next year’s heating contracts will be lower than the current year without some massive change to inventory.  As we go into the end of our current winter, we are looking to complete the second warmest winter in 10 years.

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

Best regards,

Jon Crawford

Crude Prices Continue Volatility

Good morning,

Crude prices rallied this due to draws in US inventory levels and OPEC commitments to cuts.  In addition, the US put new pressures on Russian oil companies after discovering that Russia was helping Venezuela escape US sanctions.  Also, a refinery fire in the Gulf caused Chicago spot markets to rally due to increased need for supply.  Crude prices and spot markets were set for a good weekly gain until this morning.  Today the coronavirus took the major headlines as the virus continues to spread and might not be as contained as the WHO concluded earlier in the week.  Crude prices tanked to start the day Friday bringing spot cash prices for refined fuel down with it.  So for now, the coronavirus is the new “hot headline”.  Whatever announcement hits the news each day seems to drive the market.  Volatility is back on big time in the crude trade.  Many hedge fund managers exited crude positions over the past few weeks and not many are reentering with these conditions.

Spot prices in Chicago jumped this week and I expect to see prices at the pump increase for gasoline.  Diesel prices were not affected as much.

Propane prices found some support with cold weather and high exports.  Also, there are discussions around the petrochem companies along the Gulf Coast buying into propane at these lower prices.  If the petrochems buy in, we could see the massive glut of propane decrease quickly.  For now, lower prices will continue but I don’t expect to see the bottom fall out.

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

Best regards,

Jon Crawford