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

Happy New Year!

Enough said! We could talk for hours looking into the rearview mirror on 2020.  And we will probably look into that rearview mirror from time-to-time for the rest of our lives.  But today, I am excited and optimistic for 2021!  Thank you again to everyone for all your patience, support, and understanding as we navigated the most difficult year in our lifetime.  Here’s to a better year in 2021 for the entire world!

Best regards,

Jon Crawford

Stimulus and Vaccines

Good afternoon,

The hopes of passing a new Covid stimulus bill and the roll out of vaccines boosted oil prices this week.  Even though demand in America seems to leveling off as unemployment remains high and consumer spending is dropping, the possibility of more stimulus is dragging down the dollar which causes crude prices to increase.  The addition of Moderna’s vaccine and the rolling out of the vaccine from Pfizer is giving further future support for future oil prices.  WTI crude prices are hovering near $50/barrel and I expect the market to stay inflated until at least year end.  We will wait for January and see if there is any price relief from profit taking on the market.

In local markets, gasoline prices retail climbed above $2/gallon and diesel retail prices are inching closer to $2.50/gallon.  I do not expect to see these prices come down before the end of the year.  There are too many speculative issues holding prices firm.

Propane cost has risen almost 13 cents per gallon in December.  Even though we are experiencing warm temperatures and low corn drying demand, our national inventory levels fell below last year’s levels this week due to record exportation that shows no signs of slowing.  There could be a relief in prices come January if crude prices stay high and temperatures remain warm.  This would cause exportation demand to halt and inventory levels to build quickly.  But for those who contracted this winter, so far you are in good shape.

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

Best regards,

Jon Crawford

Bitter-Sweet December

Good morning,

I hope everyone had a safe and happy Thanksgiving weekend.  Markets continue to pick up steam as we look to close out this terribly tough and exhausting year in 2020.  The Biden transition is moving along and so far none of the moves are causing too many alarms.  In addition, vaccines and more vaccines are coming out as distribution chains assemble.  Most experts are moving predictions from June to April as the month we will really start to breath relief.  OPEC+ has decided to increase production a bit starting in January, but the move seems somewhat acceptable as the world anticipates reopening.  All of the positive market and COVID news is placing a visible finish line out there for everyone to see.  And the anticipation is leading to excitement.  However, all the news is coming at a cost.  More than 100k Americans are hospitalized across the country for COVID.  That is the most hospitalizations for any disease since the the Spanish Flu.  And many more Americans are going to die.  So as we see the end to the pandemic coming closer and closer, please remember that there is a major human cost still on the horizon and most of that cost will land during the holidays.  I believe the next two months will be extremely difficult and bitter-sweet as we start to plan our lives post COVID while watching thousands of more Americans die.

Please be safe and smart out there.  We have already suffered through almost an entire year of this pandemic and thousands of American families are forever changed.  The finish line is on the horizon and I hope we can come together and finish as safe and strong as possible ready to move forward in 2021.

As always, if you have any questions, please feel free to reach out to us.

Best regards,

Jon Crawford

 

Post Election and COVID Surge Into Winter

Good morning,

I hope this message finds you well.  As our country and the world is coming to terms with Biden as President-Elect, the markets have been behaving very bullish.  On Monday of this week, Pfizer announced that their vaccine is 90% in efficacy and will be distributed to 50M  Americans by the end of the year.  Dr. Fauci is also confident that the worst of the pandemic will be over by Q2 of next year following his belief that all Americans will have access to vaccines by the end of April 2021.  The news sent all markets on a rocket ship higher.  As the Republicans continue to hold control in the Senate, many believe that President-Elect Biden will not be able to achieve much success in very progressive agendas.  Therefore, many feel that the next four years will be steady with more balance back to the middle instead of a push to far left agendas.  But the vaccine party fizzled as the realty of over 120k+ cases of COVID/day plague our nation.  Markets took a breather to end the week and are starting to accept that although the vaccine news is some welcomed positive news, the next two months are going to be a lot of sickness and a lot of death.  The upcoming holiday season will probably be one of the most painful in our lifetimes.  But for the first time since the pandemic started, we are starting to see light at the end of the tunnel.

In local news, Chicago differentials finally released their grip on cash spot pricing as harvest is coming to an end.  I don’t expect to see much price movement lower at the retail level, but at least the moves higher will likely stop.  I expect to see current retail prices hold through Thanksgiving unless something drastic happens.

Propane prices continue to hold strong even though inventories are robust.  If Wisconsin does not experience cold winter conditions by Christmas, I could see propane prices dropping in January of 2021 just like they did in 2020.  But a lot can happen between now and then.  Regardless, when looking at historical pricing, propane prices are still very low and competitive when comparing to natural gas or oil heat.  So the good news is that no matter what, whether you contracted or are riding the cash market, the heating costs for propane this coming season are a good value.

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

Best regards,

Jon Crawford

Oil Prices Steady

Good morning,

Oil prices sold off earlier this week on surging coronavirus infections across the globe, lack of a US stimulus deal, and fears of demand erosion with an abundance of supply.  The sell off was halted on Thursday when the US reported massive draws in crude oil and refined product inventories.  The market really seems to want WTI to stay above $40/barrel.  Even though fundamentals are quite bearish for crude, there are many qualitative factors affecting crude prices.  We have the Presidential election coming up, rising coronavirus infections, world wide reports of vaccines from multiple countries, and overall anxiety about what the future holds.  The anxiety of the unknown drives volatility in unexplained ways.  I would say that right now emotions are driving much of the markets and until the Presidential election is behind us, it’s going to be a bumpy ride.  Markets will still be volatile after the election, but we we will have at least one of the “unknowns” checked off the list.

In local news, retail gasoline prices are holding near $2/gallon and diesel prices on average are above $2/gallon.  I do not see much relief in diesel prices until after the fall harvest.  So far, the harvest is going smoothly and quickly.  I expect harvest to be mostly completed by early to mid-November.

Propane is the biggest headscratcher of all commodities I follow.  Prices have climbed dramatically and quickly going into winter index economics.  Although propane inventories are at record levels and corn drying demand is the lowest in many years, prices are holding steady.  Propane prices feel very, very heavy and unless the cold snap holds for the next month or so, I don’t see propane prices holding at these current levels.

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

Best regards,

Jon Crawford

Politics Like a Hurricane… Plus a Real Hurricane

Good morning,

I hope that this message finds everyone well.  Crude oil markets went on a wild ride this week.  After a steep sell off from Trump announcing his positive COVID-19 test and hospitalization, markets rebounded when Trump returned home.  In addition, politics started to play out where stimulus packages would get passed in Congress.  And then hurricane Delta poked its nose into the mix shutting down oil production and exports in the Gulf.  To top off the rally back, US inventories experienced a draw due to production cuts.  By Wednesday, crude prices were back to the highs of last week.  And now with the hurricane hitting land soon, traders took WTI over the $40/barrel mark and will probably hold until next week sometime.  Crude prices are very volatile.  I was expecting crude prices to drop today based on increased numbers of jobless claims and 23.5M people out of work with unemployment benefits running out.  Something needs to happen to support the economy.  Our entire airlines industry is going to collapse and 23.5M people out of work going into winter and holiday season is not particularity great for oil demand.  If Congress gets a deal done I believe that crude prices can hold.  If there is no deal on stimulus, then I could see crude prices tanking into the end of year.

In local news, retail prices have finally started to catch up to the increased cost on gas and diesel out of the Chicago spot market.  Although spot prices have eased a bit, I expect to see gasoline and diesel prices over $2/gallon for the coming week.

Propane production and supplies are ample, but prices continue to climb.  The situation is much of a head scratcher.  We are already at contract prices for our spot market pricing.  I think propane prices are setup to ease if the winter is mild.  You can still lock in your prices for winter though.  If you are unsure if your account is keep-fill or will-call, please call the office to clarify.  Hard to believe that winter is already sneaking up!

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

Best regards,

Jon Crawford

Warmer Than Normal Winter?..

Good morning,

I hope this message finds you all well.  I do not have much to report this week on crude oil.  The news has been fairly quiet.  The only news was that refined product inventories experienced a major draw this week.  If the US crude production starts to return sooner than expected, Saudi Arabia is being very serious about punishing the markets.  Also, the economy seems to be running out of steam based on durable good purchases and unemployment filings.  WTI is holding around $40/barrel, but I am still bearish on crude oil going into the fall.  I just don’t see demand picking up coming out of summer as more people go indoors.  For now, it’s the same-old-same-old.  We will be watching the election and anything coming out of OPEC to see if pricing will be pushed out of its current trading range.

In local news, differentials on Chicago spot pricing continue to be very volatile.  Gas and diesel prices have been very jumpy as cash markets look to cover refiners that are short going into maintenance season.  I expect to see gas and diesel prices remain near or above $2/gallon for the foreseeable future.

Propane looks to be in good supply going into the winter.  The 2021 weather forecast from a group that I enjoy following was released today.  Every single model is calling for a warmer than normal winter.  However, looking at historical winters, when every model predicts the same weather event, the opposite usual occurs.  In recent memory, the coldest winter in 10 years was actually predicted by every model to be above average, and the exact opposite happened!  The models are showing a risk of Polar Vortex movement into Wisconsin.  We are also looking at frost next week which is the earliest frost in over 10 years.  Basically, it’s too early to call, but if a few things move around I think we will have a jumpy winter with some periods of deep cold.  If it stays as predicted, our coldest month looks to be December with tons of moisture in February and March.  I will continue to keep you updated as we go into winter.  If you you have not contracted your propane or filled your tank at lower prices, it’s still not to late! 

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

Best regards,

Jon Crawford

OPEC+, FED, and Hurricanes

Good morning!

Surprisingly, crude oil prices increased 9% this week on the backs of circumstantial bullish news.  Multiple hurricanes and tropical storms are continuing to punish the Gulf of Mexico shuttering oil production temporarily.  Considering the weak demand across the globe, the supply disruptions are minimal and no damages have been reported to rigs or export facilities.  The FED announced this week that they will keep rates at zero for years and are willing to let inflation run higher.  The news is very bullish for crude prices because the announcement looks to keep the dollar weak.  Then the icing on the cake for the week was strong words from the Saudi Arabian Energy Minister saying they will do whatever it takes to keep oil prices above $40/barrel and punish anyone who tries to gamble on the market.  I have never read such strong words from Saudi Arabia in response to OPEC and other oil producers.  Libya is bringing another 1M bpd back online and other countries were discovered to have cheated on their quotas.  Basically, the run up in prices this week are reactions to circumstantial and temporary news events.  I am still seeing very weak demand on the horizon and do not believe that any there are any tailwinds to the rally this week.

In local news, surprisingly the Chicago cash market jumped dramatically on gasoline prices.  The spot cash market blew out almost 12 cents per gallon this week.  I’m guessing that with refinery maintenance season starting, a supplier is short on gasoline going into the turnaround.  Once again, temporary situation.  We might see retail prices on gasoline break above $2/gallon, but that will not last in my opinion.  Diesel prices have remained steady compared to gasoline.  Supplies of diesel are in great shape heading into the harvest.

Propane prices actually rose with crude prices this week despite healthy inventories.  Summer spot differentials are starting to wind down.  If you have not ordered your first fill for the winter, we highly recommend that you do so now.  Contract prices are very attractive and with all the uncertainty on the horizon, we recommend that you lock in your pricing for the winter.  Also, as a reminder, we are already starting the 2020-2021 heating season!  If you are a will-call customer, please make sure to start checking your tank to ensure a hassle-free delivery.

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

Best regards,

Jon Crawford