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OPEC and Russia

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Good afternoon,

Well the buildup is finally over. OPEC and Russia met today and decided to extend production cuts through 2018. After days of potential pullout from Russia, everyone came to the table and announced the agreement today. The markets did not react with any positive bounce. In fact, the extension sort of holds a “business as usual” tone. The extension agreement has been baked into crude prices for some weeks now. Now had OPEC and Russia cut more, you would have seen WTI jump through $60/barrel. Based on the results of the meeting today, I am now calling for WTI to trade in the $55-60/barrel range through June of next year. The US had large builds in gasoline and diesel inventories after a drop in crude inventories. The build in finished product is showing that refinery runs are good and the US is going to be going to market with product. So Russia and OPEC are going to have to concede market share to the U.S. I am hesitant that Russia will hold these cuts for the entire year. Russian oil companies will struggle to lose customers to the U.S. for a long period of time.

In local news, the Keystone Pipeline restarted and Chicago refineries all came back online. These announcements caused a massive drop in spot prices in Chicago as we moved to the next refinery cycle timing. I would expect to see diesel prices average around $2.85 and gasoline get down to $2.30/gallon very soon. Hopefully these will hold and we can all save some money during the Christmas and New Year’s travel season.

Propane prices have been holding steady. Supplies are in better condition with pipelines reopened and a drawdown in corn drying demand. Propane inventories had a smaller than expected draw today which surprised the market. The weather is going to truly dictate the price movement in propane. Any drop in crude prices will not affect propane if temperatures drop back to normal. As a reminder, please call in your propane order when your tank is at 30% or higher to ensure we have up to five days to get there during the busy season.

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

Happy Thanksgiving!

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Good morning!

Crawford Oil and Propane hopes everyone had a safe and enjoyable Thanksgiving! We are so thankful for all of our customers and a safe delivery season in 2017. We look forward to another safe and successful year in 2018!

Jon Crawford – Pres.
Crawford Oil and Propane

Some Cold Water on the Rally

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Good afternoon,

Last week crude oil prices skyrocketed based on Saudi Arabia causing unrest in the Middle East, the OPEC forecast for increased demand in 2018, drop in U.S. inventories, and talk of OPEC keeping the current cuts on the book until the end of 2018. Long positions on crude entered the market last week in record numbers and caused panic buying to push WTI price above $57/barrel. Most of the news agencies and pundits called for $60/barrel by the end of the year. I was a bit skeptical of how fast we moved, but I did write that if what was discussed last week were true, then yes, $53/barrel in WTI might be then new bottom action for price. Well, what a difference a week makes. This week, the IEA came out with their demand forecast. Their numbers are 600k barrels/day lower than OPEC’s forecast! The discrepancy is very notable and put many investors on their heels. In addition, the U.S. incurred over a 5MM barrel build in crude oil. I was concerned that possibly we were still catching up on post hurricane production. Clearly, we were still catching up. Also, the U.S. added more rigs to the production picture and will probably break the daily barrel/day production level record by year’s end. The IEA does not see where demand will outstrip production in the first half of 2018, even with current cuts in place from OPEC. That being said, even if OPEC continues with cuts as is, future prices will not be greatly affected. The news this week put a quick cooling to the rally. In fact, WTI has the potential to fall back below the support price of $55.barrel by week’s end! OPEC now has some major thinking to do because just extending cuts might not be enough to keep Brent above $60/barrel.

In local retail news, gasoline prices have finally eased back below $2.49/gallon. Diesel prices are now well below $2.99/gallon. The Chicago market is continuing to give back it’s earlier gains from supply disruptions. I expect to see prices fall a little bit more into next week, which is good news for the Thanksgiving travel week.

Propane prices have actually climbed a bit in the past week. With current cold weather and the highest demand for corn drying in five years, propane supplies were tight and prices followed suit. We are now at the highest delivery price in over two years. If warm weather and crude prices ease by month’s end, we could see a little relief on price in this recent propane rally.

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

Saudi Arabia, U.S. Production, Asia, and Propane Issues

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Good afternoon,

I hope this message finds everyone well. Saudi Arabia is really driving prices up in the crude oil market. Prince Mohammad Bin Salman surprised the world and arrested much of the royal family on corruption charges. One member arrested was the director of Aramco, the Saudi oil company scheduled for IPO in 2018. Prince Mohammad B Salman is trying to show his country and the rest of the world that the royal family will be held accountable to the law and no longer able to live above the law. He hopes his actions will show investors that their money will be safely invested in Aramco and not liable to corruption from the royal family. He also hopes to bring confidence to his people that the royal family will be held to the same standard of law as it’s citizens. In addition to the arrests, Saudi Arabia is calling for sanctions against Iran due to a missile launch this week from Iran. The instability in the Middle East and in Saudi Arabia in particular have added a $5/barrel premium to crude for the short and potential long term in 2018. The response is exactly what Saudi Arabia was hoping for.

At home, the U.S. is under pressure to keep up production to meet the world demand. Since the OPEC cuts, the U.S. has picked up the slack. One blink by the U.S. and prices could soar. Now, if one country in OPEC decides that Saudi Arabia is taking too much power and throws off the cuts, we could see the entire cooperation from OPEC crumble and take crude prices down along the way. For the moment, I am seeing WTI crude finishing near $55/barrel this year instead of $50. I do not think that right now is the time to lock in next year’s diesel pricing. I think opportunities will present themselves in December or January.

In local retail news, the supply issues are back in balance. Retail prices for gasoline are around $2.49/gallon and diesel prices are around $2.79/gallon. With the actions from Saudi Arabia, I’m not sure how much more relief in prices we will see before the holidays.

Propane supplies in Wisconsin were tightened due to a western and a southern pipeline issue. With the heavy increase in demand from corn drying, Minnesota and northern Illinois ran out of propane, so everyone came to Wisconsin. This caused major issues in the state and the governor issued an Extension of Hours to help haulers get product to the farmers. I expect the issues to subside in about two weeks. Prices have not been greatly affected. If warm weather hits at the end of the month, we could see some softening in the propane market. However, if cold temps come early, hold on to your seats. Those who contracted for the year are almost 20 cents/gallon under market price today.

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, Chicago Pipeline, and Propane Supply

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Good morning,

Crude oil prices have continued to rally on OPEC’s compliance to cuts. Saudi Arabia and Russia continue to commit verbally to cuts through all 2018. However, OPEC has not taken an official position to extend the cuts past March of 2018. Many investors are buying into the market on this news causing WTI to near the next resistance price of $55/barrel. However, the U.S. has continued to increase production and exportation. The U.S. completed their first shipment of crude oil to India. The U.S. crude oil production will set a new record by year’s end and does not show any signs of slowing down, especially with their new customers in Asia. As long as the spreads between WTI and Brent continue to be wide, the U.S. will continue to have the advantage on the open market while forcing OPEC to discount their exports. The geopolitical issues of the Middle East and North Korea seem to be in check and not offering to many purchase jitters. Without any significant change in demand or production, I don’t see WTI being able to push through $55/barrel. Time will tell.

In local news, the Explorer pipeline carrying gasoline out of Chicago went down last week causing the price of gasoline to spike over 30 cents/gallon. Retail prices will continue to climb dramatically until the issue is resolved. Right now there is no news on a completion date of the repair. We are hoping by the end of next week. In the meantime, I would prepare for temporary high retail prices on gasoline. Diesel cost was mildly affected, but supplies seem to be more ample. Once the repairs are completed and the refinery issues in Chicago are completed, I expect over a 35-40 cent/gallon drop in gasoline cost and potentially 10-15 cent drop in diesel cost. Hopefully everything will be back to normal before Thanksgiving and the start of holiday driving season.

Propane supplies had their first disruption this week as well. The West leg of a major pipeline went down for repairs causing massive outages across the Midwest. These outages caused companies to move across State lines and emptied supplies at some terminals in Wisconsin. We are supplied through multiple terminals, including various rail terminals which are strictly allocated. Therefore access to supply is not currently an issue for Crawford Propane. Prices for propane surprisingly have peaked for a bit. However, those who contracted as advised are sitting very good so far this year. There is some potential for price relief in November if temperatures warm up and corn drying diminishes.

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, Chicago, and Propane Prices

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Good afternoon,

I hope this message finds you all well. Over the last week, OPEC has continued to promise that they will work together to draw down the glut of crude across the globe. These statements are feeding the floor of $50/barrel set for WTI. However, the U.S. is continuing to export record amounts of crude oil. As long as the exports of crude from the U.S. continue to be strong and the spread between WTI and Brent remain large, OPEC will have to extend cuts in order to draw down global inventories. Without a major demand increase event, I don’t see much more upside left in WTI this year. The only major geopolitical event sizzling out there is the Northern Iraq conflict with the Kurds over the control of the oil fields and pipeline feeding Turkey. If this conflict escalates into civil war, we could see a bump up in crude prices across the board. In addition, at these current prices speculators have now made money on the WTI trade, so as we go into the end of the year some speculators might exit positions and cash out knowing that their starting base price for next year is already at a potential peak with not a lot of upside potential. In addition, demand tends to decrease going into winter causing another headwind for crude prices.

In local news, the November contract reference month finally expired at the Chicago exchange, and spot prices fell accordingly as I predicted. I still see about 10-15 cents of inflated spot pricing on both gas and diesel out of the Chicago exchange. So I would expect to see retail prices start to ease going towards Thanksgiving as long as some major supply or geopolitical issue doesn’t surprise the crude market. Gasoline prices are averaging around $2.37/gallon in the area and diesel is averaging around $2.75/gallon.

Propane has found some temporary support with corn drying demand and some colder weather. Delivered prices are now again at a new high for the year. However, at these prices, manufacturing could possibly start switching to different chemicals for production giving some potential relief to the current propane price. For now, I am thinking we could see some lower prices on propane towards Thanksgiving, but higher again into winter. If WTI crude falls back below $50/barrel, we could also see some relief on propane price. But WTI will have to fall at least $3/barrel in order for that to occur.

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

Chicago Price Spikes and OPEC

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Good morning,

Geopolitical issues are back on the table for the first time this year. The Iraq army invaded the northern Kurdish area this week disrupting almost 500k barrels/day to Turkey. The Kurds claimed independence from Iraq, so Iraq is trying to secure all the oil production. This disruption is critical for Turkey who might be forced to buy elsewhere. In addition, President Trump is calling for a potential cancelation of the Iran nuclear deal. If the U.S. leaves the deal, sanctions could be imposed taking another 1MM barrels/day out of the market. And to top it off, OPEC is talking with Russia about extending cuts through all of 2018 and taking the ARAMCO IPO off the table. These issues are building temporary support for crude which has now held for the longest stretch of the year above $50/barrel. For now, I feel that crude has support at these levels until some of these geopolitical issues take direction. The U.S. is also continuing its decline of crude inventory which some feel is a bit bullish. However, the U.S. production remains strong and growing, so it’s kind of a wash for now going into lower demand season this winter.

Not everything is doom and gloom though. Propane prices have settled down a bit due to a lack of demand for corn drying. The lack of demand event has eased some tensions for low peak inventory going into the winter. So as long as crude stays in check, hopefully we have seen some of the highest prices already for propane. This is great news going into the winter, considering a month ago the picture was a bit darker.

In local news, the Chicago market has continued to run at almost a 15 cent spread on diesel compared to other regions. Many are blaming the farming harvest demand. Although diesel prices are at the highest prices of the year, I expect these prices to ease coming out of October. Gasoline also has about 10 cents to give coming out of October, so hopefully going into the holiday season, we will see lower retail prices on both gasoline and diesel. The only issue that could disrupt this potential decline in price would be another leg up in crude prices. So for now, time will tell.

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 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