Crude Sell-Off After Peak

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

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