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OPEC and The Magic Number for WTI

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Good afternoon,

Well, WTI continues to be on a wild ride into the start of Q4. Statically, WTI falls on average 7% every Q4! So I was calling for a potential cap on the rally going into the end of Q3 and some profit taking would probably start to happen in Q4. Well, it didn’t take long. WTI lost over 6% on the first two days of Q4 and is now back below $50/barrel after just three days! Mind you, last week on Friday, many folks were calling for no reason that WTI wouldn’t soar to $60/barrel by the end of this week! It just goes to show you always need to look at the facts. The facts are that no real demand scenario has occurred. Production continues to be strong. The U.S. continues to add oil rigs. And OPEC actually INCREASED production in September instead of cutting as promised. The pact between OPEC and non-OPEC members is starting to get really strained since the U.S. came out stating that they are making money above $30/barrel. Now many members of OPEC are believing that cutting production is only putting money in the pockets of the U.S. Regardless, WTI is in for some wild swings but within a tight range. The “over $50/barrel” and “falling under $50/barrel” is going to be the fulcrum for a bit.

In local news, gasoline prices and diesel prices are holding steady. Demand for the fall harvest is starting, so we can expect to see diesel and gasoline prices stabilize as local demand increases. Propane prices seem to be holding steady as well. With our recent heat waves, the corn drying demand seems to be dropping a bit which is helping to ease the recent price rally. However, just today, Europe bought a TON of future propane barrels causing a knee jerk 5% increase in cost. I’m curious to see if this was a temporary spot play by Europe or more of a long-term buying practice going into the winter. If so, we could still see some more upside risk with propane. If you have not locked in your propane prices, I would still advise doing so.

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

Best regards,

Jon Crawford – Pres.
Crawford Oil and Propane

Record Close on WTI

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Good afternoon,

Not too much has changed since last week. OPEC decided to wait on discussing extending cuts in 2018. US production is still going strong. North Korea is still sending some jitters, but China’s and Russia’s involvement is easing the situation a bit. Hedge fund long positions on crude flooded the market in the past week without any real changes to economics. WTI closed at the highest price of year near $53/barrel. I am short on crude in the near term and still calling for a $55-60 ceiling next year. The only situation that has me concerned right now is propane. Propane inventories dropped almost 2MM barrels. This puts our peak inventory at 78MM barrels. With strong exports, we don’t have enough in inventory to keep up with a cold winter. The situation has already been priced into the market. Now if corn drying demand ends up being weak from all the heat, and the winter is warm, I expect to see a slight sell off in propane this winter. Propane is really over bought at the moment. We’ve had almost a 30 cent/gallon increase with no demand event. October is going to be an important month for propane retailers to see where this situation might be headed.

In local news, gasoline prices have settled out and are averaging around $2.39/gallon, while diesel fuel is averaging around $2.69/gallon. Propane prices are at the highest for 2017. I expect propane prices to edge a little higher before a possible retraction. But if winter comes early and stays, hold on to your seats because propane prices will soar.

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

Best regards,

Jon Crawford – Pres.
Crawford Oil and Propane

OPEC, North Korea, Hurricanes, US Production, and the FED

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Good morning,

Well, we have a whirlwind of info coming our way that is affecting crude prices. WTI price closed over $50/barrel this week and then immediately fell back, only to regain strength yesterday. WTI has a chance to close above $50/barrel for the week. Now a lot of events are percolating causing these swings. OPEC is meeting today to discuss extending cuts. Many countries, including now Iraq, are calling for an extension. Iraq has always been reluctant to join in more cuts and has also cheated along the way. But nevertheless, their statements are making waves. In addition, Nigeria and Libya are invited to the OPEC meeting. These two countries are a swing in the cut. If they join the cut, then we have a situation for true production cuts. However, I would expect other countries to cheat if Nigeria and Libya join, plus the chances of these two joining are slim. Saudi Arabia has cut their exports to the lowest level in years, but is also in line with yearly production cuts. I don’t expect Saudi Arabia to continue at their current levels for longer than 3-6 months.

Also this week, tensions with North Korea continued to increase as President Trump and Kim from North Korea exchange heated words. Kim is also making plans to potentially test a H bomb in the Pacific which is making everyone nervous. And speaking of oceans, the never ending train of hurricanes seems to be continuing and causing all sorts of production issues and demand erosion. Since the hurricanes have subsided in the U.S., production is back to normal and has increased since last month.

The U.S. is now producing over 9.5M barrels/day in crude and advances in technology and efficiency are allowing most energy companies to make money at $35/barrel WTI. So with the U.S. at the highest level of production and profits coming in at lower levels in price of crude, the U.S. has truly become the swing producer of the world. Time will tell how crude plays out in the true supply/demand market, but I am still hesitant based on economics to call crude moving above $55/barrel in the next 6 months. And the icing on the cake was the FED announcing the unwinding of the balance sheet which is finally putting some strength into the dollar trade. The stronger dollar will help curb any unrealistic breakouts in WTI pricing.

Propane inventories have peaked around 80MM barrels versus over 100MM barrels last year. We used about 60MM barrels of propane last year. So if demand, exports, and corn drying are about the same, we will be ok. But if we see upticks in demand, corn drying, and exports, we could be in trouble. However, propane prices are trading at about 75% value to WTI versus 50% value last year. So some are thinking propane could be over bought at these numbers. Producers locking in at these numbers gives them good hedging to keep producing at high levels going into the winter. So hopefully production continues at high levels throughout the winter.

In local retail news, gasoline prices have eased a bit from the Labor Day highs, but are still all over the board as the market finds its footing. In addition, a refinery issue in Chicago caused another price spike in gasoline, so any further downside movement has been capped temporarily. Diesel prices have been more stable but are still at the highest levels of the year. Depending on how all the previous situations described play out, retail prices will hopefully be capped for the year. Propane prices have surged over 25 cents in the last month. I have been writing that this was going to happen since back in May. Although contract and rack prices are higher, I would still recommend locking in your price at these levels since there is more risk for upside movement than downside.

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

Best regards

Jon Crawford – Pres.
Crawford Oil and Propane

Post Harvey and Pre Irma

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Good morning,

Our thoughts and prayers are with everyone affected by Harvey and the upcoming Irma. The hurricanes have caused massive outages and production delays. Prices spikes over 30 cents on gas and diesel. Prices are starting to calm down and hopefully we have peaked at retail. The North Korea and other geo-political events seem to be not affecting the oil markets at this time. The national inventory reports are mostly skewed due to the hurricanes and post holiday weekend. I expect the inventories and markets to be back to normal operations by the end of September. I will give more detailed analysis of the refined markets once these hurricanes have past.

In the meantime, if you have not contracted propane, I would highly recommend doing so. Please call the office for current prices.

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

Best regards,

Jon Crawford – Pres.
Crawford Oil and Propane

Hurricane Causes Price Spike… But Be Patient…

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Good morning,

First of all, our thoughts and prayers are with everyone in the Houston area affected by hurricane Harvey. The damages are severe and all petroleum production and exporting has ceased. The hurricane has caused a massive spike in the cost of gasoline and diesel fuel. We are expecting to see prices rise about 30+ cents on each product. But be patient. Although some geopolitical issues are at play with North Korea and Venezuela, crude prices have dropped because crude inventories should start to build in the U.S. and OPEC is cheating. In addition, at the end of September, we go into historical low crude consumption. And, the future hedge positions jumped to over 500k contracts last month, the highest in years. Basically, the traders are betting on higher crude that I don’t think is going to happen. Therefore, I think that once Houston refineries come back online at the end of September, we are going to see a massive drop in gas and diesel by early to mid-October. And, I also think that some traders will exit their positions at the end of September knowing the changes of not making out in positive territory going through Q4. I wouldn’t be surprised to see crude fall to the low $40’s by Thanksgiving. The EIA Inventory report showed a surprise drop in crude of 5.4MM barrels (I think this will adjust next week), no change in gasoline inventories, a 700k barrel build in distillates, and a 1.7MM barrel build in propane. Since the hurricane has stopped propane exports, propane inventories are starting to build. With a high corn drying demand being predicted, these builds are taking some pressure off of massive propane spikes this year. I am still calling for propane prices to climb, but hopefully not as high due to the unforeseen shutdown of exports from the hurricane.

Local retail prices on gas and diesel will continue to rise. Gas costs are increasing by almost 5 cents/day, so you will see street prices all over the place. I expect gasoline retail prices to hit almost $2.49/gallon by Labor Day and diesel retail prices will climb to $2.59/gallon. Propane prices climbed nearly 15 cents/gallon in August just as I predicted. I hope to see propane hold around these current prices going into September. If you have not contracted your propane for the heating season, please do so. After September 1st, propane contracts have the option of increasing in price.

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

Best regards,

Jon Crawford – Pres.
Crawford Oil and Propane

Thank You

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Good morning,

I just wanted to say a quick thank you to all customers who came out and attended our Customer Appreciation Day at the Fort Bp in Portage. We have the best customers and could not be happier! Almost 500 people enjoyed a free pulled pork lunch with chips and cookies! Kids enjoyed the bouncy houses and the magician was a hit! Great fun was had by everyone. Thank you also to the employees who helped out and worked very hard to put on an enjoyable experience.

I wish everyone an enjoyable rest of the summer and we look forward to providing another year of excellent service to all of our customers!

Best regards,

Jon Crawford – Pres.
Crawford Oil and Propane