What A Mess…

Good morning!

What a mess.  The disaster in Texas has sent ripple effects through the country affecting everything from the price of gasoline to the strength of the dollar.  As we settle out the week, crude prices are leveling off from their recent run higher.  Finished product prices are starting to level off as well.  Forecasts are all over the map on when Texas production will return.  I feel that crude production will come back online faster than refined products.  If that is the case, we might see crude prices ease in the coming weeks.  However, OPEC+ meets on March 4th, so a twist is added to the mix.  OPEC+ might look at the loss of 4M barrels/day in the US as an opportunity to go after market share and increase production.  Although they are enjoying these higher prices, the amount of market share lost to the US in the past two years has been dramatic.  If OPEC+ does increase production, I do believe there will be a chance that WTI crude prices drop towards $55/barrel again briefly.  I write “briefly” because I do believe that by summer and into the fall, demand will catch up to increased production.  Although I am long on crude prices for the year, there is a chance at one more dip here in the spring.  But, this is all speculative.  If the virus ramps up and causes any demand shocks, crude prices could tumble quickly.  Or if OPEC+ decides to keep production cuts in place, crude might have more upside momentum.  In other words, the mess in Texas completely threw energy into a speculative nightmare.

Local prices of gasoline and diesel continue to rise.  As I have been writing for the past couple of weeks, I just don’t see much relief on prices at the pump.  We need to get through March before more accurate price predictions can be called.

Propane has been on an absolute wild ride.  Prices have continued to swing 30 cents/gal almost every day!  The market is truly unstable and impossible to manage.  Although I do not see our company going above $2/gallon for delivery, the prices are looking to stay higher for longer due to the Texas storm and lack of inventory in Conway, Kansas.  I’m not quite sure what more needs to happen in order to persuade the US Government to enforce a strategic reserve on propane for their citizens.  As record propane exports flowed to Asia, our inventory across the country depleted quickly.  Many starting sounding alarms back in November and December.  But because of mild weather predicted for the rest of winter, producers shrugged it off and continued to keep exports strong.  The reasoning was “what are the chances of a polar vortex or an emergency happening.”  Well, a disaster did happen and the storage facilities were not at the best of levels when Texas shut down.  All I can say, is I’m glad that it’s the end of February and not January.  We are going to avoid a very dangerous situation like the one we experienced in 2014 but not by much.  We are only avoiding disaster because of timing.  The potential for disaster should not even be on the table when propane is at record producing levels.  I hope the propane industry finally comes to the table and demands that a strategic reserve be put in place during certain months in order to protect our citizens from supply shocks and price swings that are ludicrous.

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

Best regards,

Jon Crawford

Texas Disaster and Commodity Prices

Good morning,

This week at one point, two-thirds of the entire nation was below freezing.  That hasn’t happened in over sixty years!  The entire state of Texas went below freezing and into negative temperatures in some parts.  The electrical grid was unable to handle the storm and millions of people were left without power.  In addition to the electrical disaster, natural gas lines and water lines froze all over.  Millions of people by mid this week were without electricity, heat, and water.  The snow and cold shut down the entire oil and natural gas industry in Texas, which in turn shut down much of the propane production.  Natural has prices prices traded as high as 1,000% over previous day’s cost (yes, 1,000% increase in one day), and propane prices skyrocket over 60%.  To put things in perspective, the increase in propane price would be the equivalent of waking up and seeing the price of gasoline at the pump almost $2/gallon higher overnight!  That’s $4/gallon gasoline!

WTI crude prices broke through the psychological barrier of $60/barrel.  Gasoline and diesel spot prices also went on a run higher, chasing crude prices and the news stories of the day.  Overall, energy prices were shocked as if a hurricane decimated Texas and the damage from the subzero temps to crude refineries, wells, and pumps is still left to be determined.  We know that warm temperatures have landed in Texas and next week will be telling.  I do believe that prices will start to ease as the warmer temps move through the nation and production resumes.  But for now, we are trying to control our retail prices as best we can as the cost-increase shock works its way through.  Prices are moving as much as 40-60 cents per gallon in one day!  Please have patience as we navigate through the coming weeks.  I can assure you that if you call around and hear propane prices from companies that are a difference of 50 cents to a $1.00/gallon, it’s not crazy. The market is truly that volatile right now.  We are doing our best to hold our prices at the lowest averages possible to try and help our customers absorb these increased heating costs.  The good news is that I think by the end of next week, cost of propane will start to retreat, and we are not in a full propane supply crisis at the moment.  We are still able to deliver and do not see shortages or rationing on the horizon.

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

Best regards,

Jon Crawford