Monthly Archives: June 2020

COVID-19 Surging Takes The Headlines

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Good morning,

Although the US economic data looks to be improving a bit and the unemployment rate looks to be bottoming, the surging of COVID-19 in Texas, Arizona, California, and Florida have rocked the markets this week.  WTI Crude has come off of recent highs and is very skittish in trades due to the possibility of economic downturn from the surging coronavirus.  Across the globe, many countries are continuing to slowly reopen without the major resurgence as the US is experiencing.  Time will tell if the coronavirus rages back up in Europe as well.  But for now, the US is a cautionary tale to the rest of the world.  Supply and demand for crude oil seem to be somewhat in balance for the time being, but any major cutback in current demand will rapidly build surplus supplies in the US.  In addition, shale producers are saying they will need three years to peak at 16% of top level production levels experienced in February of 2020!  That is a terrible outlook for oil in the US.  We are now officially operating the LOWEST number of oil rigs in the country since the 1980’s.  Also, shale companies are looking at $300 billion in losses this year and that will put pressure on banks that are just now starting to experience some financial stress due to the pandemic.  The next three months will be very crucial in determining how we end 2020 and look to 2021.

In local news, demand for gasoline and diesel continues to remain steady.  Retail prices are dropping back down closer to $2/gallon on both gasoline and diesel.  If there is no peak in COVID-19 cases in the South by the end of next week, we will be looking at the lowest retail prices for gasoline and diesel on the 4th of July in almost 20 years.

Propane prices have stabilized due to high capacity production.  I do not believe that propane will continue at the current production runs.  Exports are starting to slow down as well.  Contracts for this coming heating season will be released very soon and will be cheaper than last season.  Stay tuned for more info.

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

Best regards,

Jon Crawford

WTI Crude North of $40/Barrel?.. Will It Last?..

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Good morning!

There is not much news to report this week.  Crude oil prices continue to follow the news cycle.  We started out the week with prices dropping based on fears of a second wave with the coronavirus.  But prices recovered as more news of potential treatments for COVID-19 were released and the EIA reported draws in US refined product inventory.  OPEC+ seem to be holding strong on their production quotas and the US is not ramping up production quickly as crude prices slowly recover.  The combination of everything that happened this week is leaving investors with an appetite for more.  So as we close the week, WTI Crude oil topped $40/barrel for the first time since the beginning of March!  But will this recent rally last?  I’m not so sure.  The economy is still slow with another 1M people filing for unemployment this past week.  I believe we are hanging on by a thread and any resurgence of the coronavirus in previous hot-spots forcing any sort of shutdowns will squash this rally.  For now, all trajectory is on the heels of any coronavirus news.

In local retail news, gasoline and diesel retail prices have climbed above $2/gallon in most areas.  Due to the 10% rise in crude prices, retail prices have followed accordingly.  I expect to see retail prices for both gasoline and diesel to remain above $2/gallon.

Propane prices have held steady and climbed a bit the past week.  I continue to be bullish on propane.  Although inventory levels are OK right now, any hiccups in production could put us into deficit very quickly with all of our export capacity running strong.  In addition, if we have a cold winter, demand could put pressure on our production facilities, which at the moment are making NO contract commitments for retailers this coming winter.  As always, propane will be interesting.  I recommend that everyone fill their tank now and contract for next heating season.  We expect next heating season contracts to be out in July.

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

Best regards,

Jon Crawford

 

Crude Sell-Off After Peak

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Good morning,

WTI crude futures started off today sinking nearly 10% after peaking at $40/barrel.  The peak pricing came on the heals of OPEC+ agreeing to keep record production cuts in place through July.  But Wednesday was a battering of bearish news for crude.  EIA Inventory Reported showed a large build in crude inventories which came as a surprise.  With rig counts being down to the lowest level in 20 years last week, many are wondering if production is still outpacing demand.  Then the FED released their statement saying they will keep interest rates near zero through 2022 because the economy is going to take a much longer time to recover.  In addition, new waves of the coronavirus are popping up in the US sparking fears of a major second wave across the country.  And finally this morning, unemployment numbers showed an additional 1.5M people applied for benefits last week.  Although the unemployment number showed a slowing of claims, claims have still not stopped which gives concerns on the long-term sustainability of the economy as it stands.  But the real head scratcher was the FED statement.  If the FED keeps rates near 0%, the action devalues the dollar, which increases the price of crude because it’s traded based on the dollar.  But the FED’s announcement caused crude prices to drop.  I have never seen that before.  But we are living in strange times and the market is behaving likewise.  I believed that the crude market was a bit over-bought so I am not surprised at the recent profit taking.  But I do not believe we will see prices fall down below $30/barrel anytime soon.

In local retail news, gasoline pump prices breached $2/gallon in some areas.  Diesel retail prices have have barely held on below $2/gallon.  I expect to see gasoline and diesel prices hover near the $2/gallon mark for some time as retail businesses continue to deal with decreased summer demand.

Propane prices have continued to remain strong.  I continue to be bullish on propane.  Although supplies are in better shape than they were a month ago, the volatility in crude and the unknown commitments from Canada and local US producers leave many wild cards on the table.  I believe now is the time to fill your propane tank.  I also urge everyone to lock in their next season’s prices.  Our contracts will be available around the 4th of July.  Stay tuned for more info.

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

Best regards,

Jon Crawford

OPEC Meeting and the Global Economy

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Good afternoon,

So the crude oil rally has taken a pause.  The OPEC meeting was not moved up a week because not all members are holding up their end of the deal.  The lack of full compliance is putting Russia more on the side of not extending the deep cuts.  The US has cut production, but not as much as other would like to see.  However, the economies around the globe are reopening and an appetite for crude is starting to return.  Gasoline demand in the US is returning as people move around for the summer.  Even with great unrest and instability in the nation surrounding the George Floyd protests and the coronavirus, the crude market and stock market continue to move higher.  I’m not so sure that Russia doesn’t pull out of the deal next week and take at least $5-7/barrel on crude price with them.  I think that Russia believes that the US shale industry got off too easy again.  But maybe now that Russia is dealing with a major coronavirus outbreak in their country, they are not wanting to rock the boat too much.  Next week will be very interesting to say the least.

In local news, gasoline prices continue to rise with the price of crude.  Gasoline retail is inching ever so close to $2/gallon.  Diesel retail prices continue to be lower than gasoline retail for the first time in many years.  We have not seen this type of spread between gasoline and diesel since before 15ppm ULSD entered the market in 2007.

Propane prices continue to slowly inch higher.  Supply is in OK shape but not great.  Compared to years past, access to Canadian propane added an extra buffer.  If crude prices recover and Canada is able to export propane at full capacity, we will not be able to rely on Canada to save the day if we have a colder than normal winter.  I am still bullish on propane and recommend that everyone fill their tanks.  Next season’s heating contracts will be issued towards the end of June, first part of July.

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

Best regards,

Jon Crawford