COVID-19 Surging Takes The Headlines

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?..

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