Conway Propane Price Blowout

Good morning,

I hope this message finds you well.  President Trump was impeached a second time this week and the markets didn’t seem to flinch.  WTI crude prices continue to hold on to gains with renewed hopes that demand will continue to improve going through the year.  IEA kept their forecast for daily crude consumption unchanged which was actually support to current prices.  Now that WTI is holding above the psychological $50/barrel, I believe that more headwinds will need to appear in order to push prices back below $50/barrel.  One of the main supports to higher prices is the potential for another $1.9 trillion dollar coronavirus relief bill proposed by President Elect Joe Biden.  The continued devaluation of the dollar will support crude price futures that are held against the US Dollar.  The US will be in a tricky situation as the economy tries to fully reopen with increased energy costs.  If the new $1.9 trillion dollar package passes we will be in a very tight balancing act.

In local news, gasoline and diesel prices continue to hold.  Retail gasoline prices are above $2/gallon and retail diesel prices are hovering near $2.50/gallon.  I do not expect to see any relief on pump prices in the coming weeks.

Propane is the story of the week.  Due to continued increased demand from China who is having a record cold winter, the US continues to produce record amounts of propane and export at record rates.  Months ago, we were looking at the largest glut of propane supply in history.  Now, inventories have fallen below the five year average and we are still in January.  Speculation and unregulated runs on Conway/Belvieu are somewhat to blame as base prices and indexes have increased over 50 cents/gal since the beginning of September.  This is over a 70% increase in cost of propane in six weeks!  To put this in perspective, that would be retail gasoline going from $2/gallon to $2.85/gallon in six weeks!  If that happened, the news would be talking.  But propane trading and exports continue to go unnoticed and unregulated.  We are allowing suppliers to export our national supply to China and the US consumer is footing the bill.  Suppliers are winning on both fronts.  I have been saying for years, propane is a need based commodity during six months of the year.  The propane export business is new within the last ten years.  Nothing has been done to protect our national supply from being fully exported and leaving the US with supply shortages and record price increases.  I am hoping that we see a price decline to start the first week in February.  If not, propane prices could get ugly.

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

Best regards,

Jon Crawford

Curve Ball From Saudi Arabia And Surging Propane Exports

Good morning,

I hope this message finds you well.  I think it is safe to say that we are starting off 2021 picking up right where we left off in 2020:  lots of uncertainty, stress, and chaos.  WTI crude prices look to finish the week at an 11 month high due to many factors.  The week started off with OPEC+ meeting and surprisingly a curve ball was thrown by Saudi Arabia to end the meeting.  Everyone except Russia wanted to keep production levels at current levels until March.  Russia wanted to be able to increase production by 500k barrels/day, even though the action might cause a dip in price on the market.  Russia is still upset at the sanctions being placed on them from the US, lead by Sen. Ted Cruz.  Where is Cruz from?  Texas.  What’s in Texas?  Largest shale oil play in America: The Permian Basin.  Russia is willing to run at depressed prices if it keeps the American oil industry from ramping back up.  Saudi Arabia on the other hand has been willing to give up market share in return for higher crude prices, gambling on demand increases coming later in the year.  So on Monday, when the meeting ended with a standstill, many of us thought that Russia might go rogue and prices could fall.  Instead, on Tuesday Saudi Arabia agreed to let Russia increase production, but offered an additional 1M barrel/day cut in production from their own supply!  The move was a total surprise.  Saudi Arabia basically gave the go-ahead to Russia to take their customers.  The move caused WTI prices to surge over 8% and continued to climb throughout the week.  When you couple this move with the issues in America and the continued devaluation of the US Dollar, I’m not seeing a lot of downward pressure on crude prices.  The only wild card hanging is the new COVID variant spreading around.  If the lockdowns across the globe make it to America, we could see a temporary demand shock.  However, President elect Biden has promised 100M vaccinations in the first 100 days and Dr. Fauci seemed to approve the process this week saying it’s very possible based on the plans he has read.  So although there is a chance for some depressed prices in Feb and March, the long term trend on crude prices seem to be higher prices.  In fact, Goldman Sachs revised their guidance to $65/barrel WTI by end of year 2021!  That would be exactly where crude prices were holding before the pandemic started.  The majority are all calling for $55-65/barrel WTI crude throughout the year which is a minimum $5/barrel higher than we are now.  Regardless, it seems that the days of cheaper gasoline and diesel could be short lived in 2021.

Local retail prices have risen due to the increase in cost.  I believe that gasoline prices will continue to hold over $2/gallon and diesel prices could breach $2.50/gallon in the coming weeks without some price relief.

Propane prices have been on an absolute run!  Propane prices have gone up 30 cents/gal in the last 45 days!  Even though we started the year at record level inventories, experienced a lack-luster corn drying season, and we are in a warmer winter than last year, inventories have dropped to lower levels than last year!  The culprit is record exports.  Production is at an all-time high and producers can’t fill ships fast enough to export to the rest of the world.  With WTI prices above $50/barrel, we are thinking that propane exports might start to slow down.  In fact, propane prices might DROP in February and March, in the middle of winter.  But stranger things have happened.  If exports continue at this rate, propane will be a very interesting commodity to watch.  Storage hubs usually trade between 40-55% crude prices.  We have seen 65-85% crude prices these days!  The spread is absolutely bonkers!  We will be watching the markets closely the first three months of the year as the situation continues to play out.

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

Best regards,

Jon Crawford