Crude Correction, the FED, and Lockdowns
Good morning,
Crude oil prices have dropped for five straight days. Yesterday WTI crude dropped 7%. The last time crude prices dropped that much was in September of 2020 and the third wave of COVID was starting in the US. Crude prices are coming under pressure as the FED manages the US monetary policy. Bond markets are heating up and some traders are liquidating long crude positions and buying into bonds. In addition, Europe halted their vaccinations with AstraZeneca and starting lockdowns in various cities. Crude prices have been very frothy and we have been waiting for something to break the cycle. Well, the cycle has been broken and now many traders are frantically trying to “talk up” crude to cover short positions. The correction might be a good buying opportunity for future positions, but I don’t know if the correction is over yet.
In a surprise move, gasoline and diesel retail prices might ease a bit in the coming week due to the drop in cost. Although margins were slim at these higher prices, I believe you might see some cheaper prices at the pump next week.
Propane prices are continuing to slowly unwind from the back-t0-back short squeezes on the market and the effects from the Texas Deep Freeze. I do not expect to see propane summer fills below $1/gallon, but we could get close. For now, if you still have contract gallons remaining on your account, I recommend using them up and waiting to see if prices are down towards the end of August. Inventories of propane are still 15% below the five year average so we won’t know until at least August if we are out of the woods on supply issues going into next season.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford
Higher Prices Continue
Good afternoon,
There is not much new information to report this week. Crude production continues to be strong, but refining capacity is lagging. The stimulus bill was signed by President Biden fueling fears of inflation along with increased demand. The virus situation in America continues to look positive adding to hopes of robust economic rebound. Couple the positive news in the US with OPEC holding firm on production cuts, and we now have WTI crude prices and refined products at the highest level in years. The interesting dynamic to watch is the relationship between spot crude prices and long contracts. The higher crude prices go now, the lower the back end of the curve moves. Therefore, traders are hedging on crude prices being too frothy at the moment and the situation will incentivize OPEC and Russia to start pumping sooner than later. We might have a year where the cheapest prices of the year are in summer. Honestly, there is no real road map to our situation. Only time will tell.
Refined products are at their highest levels in years. Gasoline retail prices will break $2.75 and diesel retail prices might even break $3.00/gallon. I don’t expect any price relief in the short term.
Propane prices are slowly unwinding with the end of winter. However, given the low levels of inventory and continued exports, I do not expect next season’s cost or summer fill prices to be as low as this year. If you have contract gallons remaining until the end of April, I tend to recommend that you use them up rather than waiting for cheap summer fill prices. There is just too much uncertainty in the market right now.
As always, if you have any questions, comments, or concerns, please feel free to give us a call.
Best regards,
Jon Crawford