Memorial Day Weekend Announcement

Good morning,

Instead of a market update on the chaos of trading and the coronavirus, I’d like to take a step back and zoom out.  I want to take this moment on behalf of everyone at Crawford Oil and Propane to remember and honor all men and women in our Military who gave the ultimate sacrifice of their lives defending our Country.  Have a safe and reflecting Memorial Day weekend.  I will touch base next week with a market update.

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

Best regards,

Jon Crawford

Crude Finding Support, Prices Rising

Good morning,

Not too much to report this week.  WTI crude prices have risen this week to nearly $30/barrel.  There is much optimism on the continued cuts from OPEC and the US.  In addition to the cuts, China’s crude demand is ticking back up as the country is reopening.  The traders are also hopeful that US demand will continue to rebound from the lows in March and April as states begin to reopen.  The FED is also calling for more stimulus which always raises commodity prices.  I feel that the current WTI price recovery is too fast.  Although there are some bullish headlines out there, the supply balance in the US is still on the bearish side.  I’m not hopeful that WTI will break out much beyond $30/barrel.  If for some reason WTI does break much above $30/barrel, we will see rig counts increase and another price collapse.  I still think we are six to twelve months away from complete supply re-balance in the marketplace.

In local retail news, prices of gasoline and diesel continue to rise.  I do not expect to see pump prices go down anytime soon.  I would count on gas prices above $1.50/gallon throughout the summer at this point in time.

Propane prices also continue to rise.  The supply economics of propane continue to be bullish.  By no means is the propane supply situation looking like an emergency, but the world of overabundance in supply are behind us.  I highly recommend filling your tank and contracting for next season when the contracts become available.

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

Best regards,

Jon Crawford

Crude Rally – Pump Prices Rise

Good morning,

WTI prices gained more than 40% on hopes of the world economies reopening and demand potentially soaring back with a vengeance.  WTI settled this week near $24/barrel.  In addition, the builds in US inventories were not as large as expected.  Production seems to finally be dropping.  However, in my opinion, the rally back seems to be a bit over-bought.  Inventory levels are still high and the world supply is still robust.  Unless there are more stories of magical cures hitting the market this month, there is a potential for another massive sell-off on the WTI contract this month.  Saudi Arabia did cut a bunch of tanker shipments, but at the same time, there are not many tankers left to fill!  So for now, WTI will probably hang around these levels and move in volatile swings until the end of the month.

In local retail news, gasoline retail prices continue to rise.  The glut of supply in Chicago is gone.  Gasoline and diesel costs have risen over 50 cents/gallon these past weeks.  I expect average retail prices of $1.69/gallon gasoline and $1.79/gallon diesel fuel to continue into next week.

Propane prices continue to rise as I have been writing the past weeks.  Propane seems to have bottomed in mid-March and not looked back.  We are suggesting that everyone fill their tanks now if possible.  Production cuts are adding to the supply worries in propane.  Contracts for next season will be coming out probably in June sometime.  Stay tuned.

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

Best regards,

Jon Crawford

Temporary Floor – Chicago Glut Gone For Now

Good morning,

I hope this message finds everyone safe and well.  Crude oil prices are hopefully carving out some support to keep from falling into single digits or negative territory.  Oil companies are beginning to finally cut production here in the US.  In addition, oil companies are starting to do what I feared: cutting dividends.  Shell announced a slashing of their dividend for the first time since WWII!  The inventory report this week showed that maybe we have peaked in production and finally slowing down on building of inventory.  The FED continues to put out offers for helping the economy which also help support oil prices.  We are also seeing a slight, and I do mean slight demand pick up on gasoline which shows that people are slowly starting to move around.  But I am not confident that oil prices will go much higher.  We are not out of the woods by any means.  So many oil companies burned through cash and restructured debt from 2018 hoping for the payoff in 2020.  Well, that’s not going to happen.  I imagine that bankruptcies and depressed oil stocks will continue through summer.

In our local market, gasoline cost has risen over 45 cents/gallon since the beginning of April.  Do not believe what you read in the papers.  Gasoline prices will not be staying under $1/gallon.  The glut of gasoline supply in Chicago is now gone and market economics have balanced accordingly.  The retail cost of gasoline is well above $1/gallon.  I expect to see gasoline prices rise to almost $1.49/gallon in the coming week.  Diesel cost has also risen by almost 30 cents/gallon.  I expect to see diesel retail prices move up a bit in the coming weeks as well.

Propane continues to be a wild card.  Exports diminished for the first time in weeks which helps building local supply, but as price of crude rises, propane price will also start to rise.  There are a lot of chicken and the egg scenarios in propane.  Right now inventory levels are not great, but they are not terrible.  The main concern is Canadian rail propane.  In years past, the US has been well supplied by Canadian propane.  That does not look to be the case in the coming year.  Therefore, we will be heavily dependent on the ability of the US cavern storage to meet consumer demand in 2020/21.  I believe that the price on propane today has the potential to be the lowest price of the year.  I am recommending that people fill up now if they can.  Contract pricing will be coming out soon.  I know for certain that next season’s price will be lower than this season.

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

Best regards,

Jon Crawford

First Time for Everything

Good afternoon,

I hope this message finds everyone safe and well.  The past five days have been the craziest trading days I have experienced since the run-up in price of 2008.  Since March, crude producers and refiners in America ceased to stop production of product.  I think many felt that something would give in the coronavirus pandemic, OPEC would save the day, or Trump would purchase a massive amount of products for the US Reserves.  Unfortunately, none of these events came into play and by the end of April, many traders were starting to hold paper contracts for May with nowhere to sell the product.  I wrote last week that strange things might happen with expiration of the May futures contract.  I don’t think anyone thought we would experience what happened.  The day before the expiration of the contract, a ton of May delivery contracts were sitting out there with no home for storage.  As the contract price of WTI collapsed, I thought, “will the contract go negative for the first time in history?”.  Well, it did.  Once the contract went to -$0.03/barrel, I took a snap shot on my phone to mark the occasion.  But then the contract went to -$0.63, then -$1.44, then -$2.56, then $-5.22, all the way to -$38.46/barrel!  The WTI contract has never traded negative since the beginning in 1983.  What this means, is that any trader holding May crude contracts was going to have to PAY someone $38.46/barrel to take the crude.  The losses were unimaginable.  But in my opinion, totally explainable and rational.  American producers did not cut as fast as they needed to.  For whatever reason, they gambled and lost.  I believe these were all calculated business decisions that unfortunately needed to happen to force the industry to slow down.  Once the June contract started, the market started to re-balance.  And now on Friday, we are back to some sort of equilibrium.  But don’t hold your breath.  WTI crude prices are one large bad trade away from collapsing again.  Until we see demand pick up in the country and the rest of the world, crude oil will experience the most volatile times in trading history.

In local news, last week I talked about not getting too used to gasoline retail prices under $1.00/gallon.  Well, it’s over.  Based on gasoline costs, by the end of next week, Wisconsin should be back above $1/gallon on gasoline.  Gasoline prices shot up almost 30 cents this past week as the Chicago spot market gave up it’s differential advantage to the Group.  Diesel retail prices remain low in our market, but Chicago differentials are cheap compared to the Group.  So just like with gasoline, sometime in the next couple weeks, diesel costs will probably jump dramatically in our market.

Propane prices are continuing to rise since the lows hit in early March.  I have been telling everyone that the time to fill your tank is now, not in the summer.  If crude prices stay low, there will be very limited production of propane which is going to cause propane prices to rise even further.  There is a possibility of supply reliability going into fall depending on how much production is cut in the US and Canada.  For now, I suggest that everyone fill their tanks and wait for contract prices this summer.  Do not fall into the trap that lower crude and gas/diesel prices mean cheaper propane is on the way this summer!

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

Best regards,

Jon Crawford

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