Devil in the Details

Good morning,

I hope this message finds everyone safe and healthy.  Since OPEC+ announced a deal to cut production by a record 9.7M barrels/day, crude prices have found some floor support.  Many people are rejoicing at the low price of gasoline and diesel in the US right now.  However, demand is down nearly 50% and spot prices for gasoline and diesel are primed for a major jump in the coming weeks.  The devil is in the details of the current market condition.  Unless the US cuts oil production dramatically, WTI crude prices will continue to tumble.  However, we are seeing Brent prices rise along with refined products and propane.  How could this be?  Well, Brent crude is what we import for East Coast refineries.  Since Brent production is being cut, base cost is starting to increase.  Much of the crude in the Midwest comes from Canada.  Canada is announcing almost 25% reduction in production.  But the price of WTI (crude harvested in shale plays) is dropping, and dropping fast.  The market is telling American producers, if you don’t turn off the wells, WTI prices will fall to single digits.  So for now, we are seeing WTI break away from Brent.  I expect the spread in price between WTI and Brent to grow dramatically over the coming months until the US cuts at least 25% production.  China’s appetite for crude is starting to come back which is helping alleviate some of the initial crude oil glut, but we have a long way to go.  The only way crude prices pop like a rocket is if a miracle treatment for the coronavirus hits the market and moves economies to a V shaped recovery instead of a U shaped recovery.

In Wisconsin, some areas are enjoying gas prices below $1/gallon.  My advice, don’t get too comfortable with that price.  Chicago Spot Market, which is the basis for the majority of gasoline purchased in Wisconsin, is trading at a 42.5 cents BELOW New York Harbor Contract (the basis for gasoline prices).  In other words, our gasoline is 42.5 cents/gallon cheaper than the base for gasoline.  The fall in pricing differentials is due to a glut of gasoline coming out of the Chicago refineries the past month and a half.  The glut is starting to diminish as refineries cut utilization projections going into June.  Our neighbors in Minnesota and Iowa saw their cost of gasoline rise 20 cents in two days!  I believe that when the June contract for Chicago comes into trade next week, we have a potential to see gas prices rise 20 cents/gallon in our market.  So for now, enjoy the cheap gasoline while it lasts, but don’t get too comfortable.  Diesel prices are remaining very low, but they also have about 20 cents/gallon to give up based on differentials.  I’ve been telling all farmers to fill up now for planting season.

Propane prices reached a bottom in pricing back in March.  Prices have been slowly rising since and I don’t expect to see any cheaper pricing in propane for the remainder of the year.  Propane supplies are very tight due to the lack of production in Canada and the US.  In addition, exports remain at RECORD levels to this day.  Therefore, the glut of propane in our country is already starting to dwindle.  I believe that prices for delivery today will be cheaper than in the summer.  I am advising all customers to fill their tanks now and contract for next year.  At this time, propane prices have a potential to be very volatile and risky for index blowouts.  If you are waiting for a summer fill, I believe the time is now.  There is much more upside risk in propane than downside.

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

Stay safe and be well!

Best regards,

Jon Crawford

Happy Easter

Good morning,

Rather than a usual update on the markets and the coronavirus, I just wanted to take this moment and wish everyone a safe and happy Easter weekend.  There is so much going on around crude oil and the coronavirus, but I think taking a step back for Easter weekend is needed.  We are closing at 11am on Friday and Monday so staff can enjoy a little more time at home.

I will be in touch again next week with updates around the G20 Energy Ministers meeting and the proposed cuts to crude production.  Also, there are some interesting developments happening with propane supplies and the upcoming season.

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

Be safe and be well!

Best regards,

Jon Crawford

Update: Crude Carving Out Bottom

Good morning,

I hope this message finds everyone safe and well.  I know the past few weeks have been very difficult and scary at times.  I also know that we are not out of the woods yet.  Crawford Oil and Propane is continuing to do everything we can to operate safely.  Our services are in full operation, but with a few changes to help with stopping the spread of the coronavirus.  We support everyone during this challenging time and hope everyone stays safe.

Crude oil is starting to carve out a bottom as Saudi Arabia and Russia work to cut production.  Rumors are also floating that the US will possibly cut production.  From best estimates, more than 10-15M barrels/day need to go offline to balance the demand destruction in April.  We are about the experience the largest drop in oil demand ever.

Retail prices on gasoline and diesel have also balanced out around the market.  I do not expect to see gasoline or diesel prices go much lower as long as OPEC, Russia, and the US cut production.  If the countries fail on a deal, single digit crude prices are possible.

Propane prices are actually firming up.  There is a potential for summer fill prices to be higher than today’s price.  We are actually encouraging everyone to take advantage of these current prices.  There is more upside potential in propane prices than downside.  Next season’s heating contract prices will be released sometime this summer.

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

Best regards,

Jon Crawford

Be Safe and Be Well

Good morning,
 
I just wanted to reach out and wish everyone a safe weekend. I know that days are very difficult for many people right now. All of our lives are turned upside down and fear of the unknown grips many of us daily. I know that I have had my many moments over the past two weeks.
 
Please know that our company is doing everything in our power to be safe and be able to deliver products through this difficult time. We are doing our daily best to support each other within our company and our families at home as well. We are also doing our best to stay isolated outside of work to ensure the lowest possibility of spread within the community and our company.
 
If you have any questions, comments, or concerns, please feel free to reach out to us.
 
Once again, be safe and be well!
 
Best regards,
 
Jon Crawford

COVID-19 Update

Good morning,

I know that this message finds many of our customers scared, confused, and anticipating answers.  Please know that Crawford Oil and Propane is taking all necessary precautions recommended by the CDC and Gov Evers here in Wisconsin.  Please take a moment to read up on the CDC website to best stop the spread of the virus.  We can calmly work together to stop the COVID-19 spread and hopefully watch this virus leave us as quickly as it came.

https://www.cdc.gov/coronavirus/2019-ncov/index.html

 

 

 

Market Bloodbath

Good morning,

The spread of the coronavirus has taken all markets by storm and entered into correction territory.  No matter what any true market conditions are appearing, the markets have sold off at the highest capacity in one week since 2008.  Crude prices are down to over four year lows.  The massive sell off is creating potential future buying opportunities, but no one knows how long this could last.  For right now, it’s sit back and watch the falling knife.  However, I would like to point out, that in my opinion, there are some signs of supply tightness in the diesel market and no matter how low crude prices go, diesel might be starting to form a bottom.  Little early to call, but it’s something I am watching.

Local retail prices are not able to fall fast enough.  I expect retailers will slowly lower prices to make up for losses on the last run higher.  At the rate we are going, gas prices below $2/gallon are not out of the question in the coming week or so.  Diesel prices will also continue to come down.  At this point, we are at the potential for the lowest cost on diesel for planting season in many years.

Propane prices have not followed along with crude in the bloodbath sell off.  Propane prices are bouncing along a bottom sweet spot.  If they go any lower, the petro-chem companies will buy up everything in inventory, and I mean everything.  So traders are not throwing in the towel just yet.  However, I can safely predict that I believe next year’s heating contracts will be lower than the current year without some massive change to inventory.  As we go into the end of our current winter, we are looking to complete the second warmest winter in 10 years.

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

Best regards,

Jon Crawford

Crude Prices Continue Volatility

Good morning,

Crude prices rallied this due to draws in US inventory levels and OPEC commitments to cuts.  In addition, the US put new pressures on Russian oil companies after discovering that Russia was helping Venezuela escape US sanctions.  Also, a refinery fire in the Gulf caused Chicago spot markets to rally due to increased need for supply.  Crude prices and spot markets were set for a good weekly gain until this morning.  Today the coronavirus took the major headlines as the virus continues to spread and might not be as contained as the WHO concluded earlier in the week.  Crude prices tanked to start the day Friday bringing spot cash prices for refined fuel down with it.  So for now, the coronavirus is the new “hot headline”.  Whatever announcement hits the news each day seems to drive the market.  Volatility is back on big time in the crude trade.  Many hedge fund managers exited crude positions over the past few weeks and not many are reentering with these conditions.

Spot prices in Chicago jumped this week and I expect to see prices at the pump increase for gasoline.  Diesel prices were not affected as much.

Propane prices found some support with cold weather and high exports.  Also, there are discussions around the petrochem companies along the Gulf Coast buying into propane at these lower prices.  If the petrochems buy in, we could see the massive glut of propane decrease quickly.  For now, lower prices will continue but I don’t expect to see the bottom fall out.

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

Best regards,

Jon Crawford

Small Crude Rally

Good morning,

As the coronavirus continues to spark worries of demand erosion across the world, crude prices actually gained a small percentage this week.  The gains were mostly on the heels of the news that OPEC+ is going to cut production no matter what to keep WTI prices from falling into the basement.  In addition, many believe that maybe the coronavirus is being overstated in market pricing.  Regardless, crude prices increased a small percentage this week.  The IEA is calling for crude consumption to drop in Q1 for the first time in years.  Also, the crude oil inventories in the US continue to build.  I believe we are taking a breather, but the crude market still looks very bearish.

Refined products increased in price this week on a temporary price spike due to a Mobil refinery fire down in Louisiana.  The refinery is the 5th largest in the US.  Gasoline prices jumped almost 10 cents/gallon!  However, retail prices in our market DROPPED in price!  Go figure 🙂  Diesel prices gained a bit in cost, but not much movement at the pump.

Propane prices continue to remain very bearish.  Our national inventories are at record levels and even with the current demand increase, we don’t expect to see propane values increase at all over the coming months.  We believe that propane values will be very attractive over the next year.

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

Best regards,

Jon Crawford

Coronavirus and Warm Temps

Good morning,

The coronavirus continues to put downward pressure on crude prices.  WTI crude is holding near $50/barrel which is the lowest in almost a year.  OPEC+ is meeting early to try and convince everyone to pump less oil until the coronavirus is contained.  Russia is disagreeing to the terms and believes that nothing should be done until the coronavirus is further studied.  If Russia pumps less oil, the US will take the market share and Russia is not ok with that happening.  The US continues to pump at record levels and is not looking to slow down.  To try and help keep the steam in the economy, China announced slashing tariffs on US goods in a couple weeks.  China knows the coronavirus is going to slow things down a bit, and if anything, the virus is forcing the two countries to talk more about the trade dispute.  For now, we are seeing a floor carve out on oil prices.  I believe we will trade in the $50-55/barrel range on WTI until further notice on the coronavirus.  I believe that if a cure is found and the virus is contained, WTI crude will jump $5/barrel.  However, until real economic slowdown occurs, I don’t think traders are going to give up much more on crude prices.  For now, it’s a day-to-day move with the news cycle.

In local retail news, refined products have softened once again, so I expect to see retail prices on gasoline and diesel hold around their current levels for some time.

Propane prices have also softened with record warm temperatures.  The US actually experienced a BUILD in national inventory last week, when last year at this time it was a record drop!  We are looking at ending the winter with as much in inventory as we sometimes have to start winter!  I think that propane values are very attractive and I see very cheap prices on the horizon for the rest of this year and next winter.  So for those who heat with propane, hopefully you can keep more money in your pockets for 2020 and 2021!

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

Best regards,

Jon Crawford

Coronavirus Causing Market Sell Off

Good morning,

The week started off with Libya’s production going offline due to internal civil war conflicts again.  In the past, this type of conflict caused at least a 5% spike in prices.  Instead, traders shrugged off the event due to the US hitting another week of record production runs and increases in inventory volumes.  The IEA is still calling for decreasing prices in the second half of the year due to crude supplies going into surplus while under current OPEC+ production cuts.  But the big news of the week is the Chinese Coronavirus.  The virus continues to spread to other countries and has killed close to 100 people already.  A city of almost 30M people is under quarantine in China.  The last time this happened was with SARS and crude prices tumbled due to demand erosion.  Well, history is proving itself to be true once again and crude prices tumbled to their lowest levels in the last three months.  WTI crude is starting to point closer to $50/barrel than $60/barrel.  For now, we are awaiting developments on the Coronavirus and taking cues from the WHO.  Until we know where the virus is heading, I think the last rally in crude prices is on ice.

Local retail prices on gasoline and diesel are slowly decreasing.  However, spot cash prices have not dropped as much as expected with the decrease in crude prices.  Regardless, I don’t expect to see prices at the pump go up in the coming week or so.

Propane prices dropped once again this past week.  The weather continues to be propane’s worst enemy.  We are getting very close to experiencing the warmest January/December on record.  The demand destruction on propane is very real, even though exports are at record levels.  At the current inventory levels, we are one pace to end the winter with the most propane in inventory post winter in the history of tracking inventory!  If the current state of propane holds, I would expect very low prices on summer fills this year.

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

Best regards,

Jon Crawford