OPEC+ Surprise

Good afternoon,

I hope this message finds everyone safe and well.  The big news of the week was the EIA Inventory Report post Texas restarting and the OPEC+ meeting this morning.  Yesterday, the EIA reported a MASSIVE build in crude oil inventories that gave support to the theory that crude production would come back online faster than refinery capacity.  Given that gasoline and diesel inventories reported MASSIVE draws in inventory, the theory was further supported.  WTI crude prices backed off from recent highs and retreated back below $59/barrel with anticipation for the OPEC+ meeting today.  Many analysts were reporting that Saudi Arabia was planning on removing their “self-imposed” additional production cut of 1M barrel/day and they would support an additional 500k barrel/day increase from other members.  Russia was very adamant that production curbs be lifted due to the market being in balance back in February.  Considering that the US is trying to figure out which rigs to restart from the 50% decimation in 2020, I thought that this meeting would be the “message sender” from Saudi Arabia and Russia showing that they would control the oil recovery in 2021.  That being stated, I figured at least 1.5M/day production increase would have been announced.  Instead, with another surprise that no one really believed would happen, OPEC+ decided to keep all cuts, including “self-imposed” cuts in place until the end of April.  The news sent crude prices on a whipsaw higher.  WTI and Brent crude prices are now officially higher than the peak before COVID started.  I find this optimism in price to be very frothy and reactionary.  Demand is nowhere near it was pre-COVID, and production is all in place to rock-and-roll here in the US starting in 2021.  I believe that speculation is driving the crude trade, and therefore, crude prices are going to be highly volatile for the remainder for the year.  In the meantime, expect energy prices to remain higher through at least April until OPEC+ meets again and decides to possibly increase production.

Retail prices of gasoline and diesel continue to be inching higher.  I would not be surprised to see retail diesel prices at the pump near or over $3/gallon soon, and gasoline retail prices over $2.75/gallon.  Unfortunately, any short-term relief that was possible due to the potential outcomes of events this week has disappeared.

Propane prices are slowly unwinding from the disaster in February.  We are just so fortunate that it’s March and not January.   I do not see the Midwest running out of propane this season.  However, it’s still not time to relax.  The past years have given us very cold Aprils and I would not be surprised to see a colder April this year.  If you watch your own tank, please make sure to check your propane level occasionally in March and April as propane will continue to burn even at these warmer temps.

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

Best regards,

Jon Crawford

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