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OPEC+ Surprise

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Good afternoon,

I hope this message finds everyone safe and well.  The big news of the week was the EIA Inventory Report post Texas restarting and the OPEC+ meeting this morning.  Yesterday, the EIA reported a MASSIVE build in crude oil inventories that gave support to the theory that crude production would come back online faster than refinery capacity.  Given that gasoline and diesel inventories reported MASSIVE draws in inventory, the theory was further supported.  WTI crude prices backed off from recent highs and retreated back below $59/barrel with anticipation for the OPEC+ meeting today.  Many analysts were reporting that Saudi Arabia was planning on removing their “self-imposed” additional production cut of 1M barrel/day and they would support an additional 500k barrel/day increase from other members.  Russia was very adamant that production curbs be lifted due to the market being in balance back in February.  Considering that the US is trying to figure out which rigs to restart from the 50% decimation in 2020, I thought that this meeting would be the “message sender” from Saudi Arabia and Russia showing that they would control the oil recovery in 2021.  That being stated, I figured at least 1.5M/day production increase would have been announced.  Instead, with another surprise that no one really believed would happen, OPEC+ decided to keep all cuts, including “self-imposed” cuts in place until the end of April.  The news sent crude prices on a whipsaw higher.  WTI and Brent crude prices are now officially higher than the peak before COVID started.  I find this optimism in price to be very frothy and reactionary.  Demand is nowhere near it was pre-COVID, and production is all in place to rock-and-roll here in the US starting in 2021.  I believe that speculation is driving the crude trade, and therefore, crude prices are going to be highly volatile for the remainder for the year.  In the meantime, expect energy prices to remain higher through at least April until OPEC+ meets again and decides to possibly increase production.

Retail prices of gasoline and diesel continue to be inching higher.  I would not be surprised to see retail diesel prices at the pump near or over $3/gallon soon, and gasoline retail prices over $2.75/gallon.  Unfortunately, any short-term relief that was possible due to the potential outcomes of events this week has disappeared.

Propane prices are slowly unwinding from the disaster in February.  We are just so fortunate that it’s March and not January.   I do not see the Midwest running out of propane this season.  However, it’s still not time to relax.  The past years have given us very cold Aprils and I would not be surprised to see a colder April this year.  If you watch your own tank, please make sure to check your propane level occasionally in March and April as propane will continue to burn even at these warmer temps.

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

Best regards,

Jon Crawford

What A Mess…

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Good morning!

What a mess.  The disaster in Texas has sent ripple effects through the country affecting everything from the price of gasoline to the strength of the dollar.  As we settle out the week, crude prices are leveling off from their recent run higher.  Finished product prices are starting to level off as well.  Forecasts are all over the map on when Texas production will return.  I feel that crude production will come back online faster than refined products.  If that is the case, we might see crude prices ease in the coming weeks.  However, OPEC+ meets on March 4th, so a twist is added to the mix.  OPEC+ might look at the loss of 4M barrels/day in the US as an opportunity to go after market share and increase production.  Although they are enjoying these higher prices, the amount of market share lost to the US in the past two years has been dramatic.  If OPEC+ does increase production, I do believe there will be a chance that WTI crude prices drop towards $55/barrel again briefly.  I write “briefly” because I do believe that by summer and into the fall, demand will catch up to increased production.  Although I am long on crude prices for the year, there is a chance at one more dip here in the spring.  But, this is all speculative.  If the virus ramps up and causes any demand shocks, crude prices could tumble quickly.  Or if OPEC+ decides to keep production cuts in place, crude might have more upside momentum.  In other words, the mess in Texas completely threw energy into a speculative nightmare.

Local prices of gasoline and diesel continue to rise.  As I have been writing for the past couple of weeks, I just don’t see much relief on prices at the pump.  We need to get through March before more accurate price predictions can be called.

Propane has been on an absolute wild ride.  Prices have continued to swing 30 cents/gal almost every day!  The market is truly unstable and impossible to manage.  Although I do not see our company going above $2/gallon for delivery, the prices are looking to stay higher for longer due to the Texas storm and lack of inventory in Conway, Kansas.  I’m not quite sure what more needs to happen in order to persuade the US Government to enforce a strategic reserve on propane for their citizens.  As record propane exports flowed to Asia, our inventory across the country depleted quickly.  Many starting sounding alarms back in November and December.  But because of mild weather predicted for the rest of winter, producers shrugged it off and continued to keep exports strong.  The reasoning was “what are the chances of a polar vortex or an emergency happening.”  Well, a disaster did happen and the storage facilities were not at the best of levels when Texas shut down.  All I can say, is I’m glad that it’s the end of February and not January.  We are going to avoid a very dangerous situation like the one we experienced in 2014 but not by much.  We are only avoiding disaster because of timing.  The potential for disaster should not even be on the table when propane is at record producing levels.  I hope the propane industry finally comes to the table and demands that a strategic reserve be put in place during certain months in order to protect our citizens from supply shocks and price swings that are ludicrous.

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

Best regards,

Jon Crawford

Texas Disaster and Commodity Prices

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Good morning,

This week at one point, two-thirds of the entire nation was below freezing.  That hasn’t happened in over sixty years!  The entire state of Texas went below freezing and into negative temperatures in some parts.  The electrical grid was unable to handle the storm and millions of people were left without power.  In addition to the electrical disaster, natural gas lines and water lines froze all over.  Millions of people by mid this week were without electricity, heat, and water.  The snow and cold shut down the entire oil and natural gas industry in Texas, which in turn shut down much of the propane production.  Natural has prices prices traded as high as 1,000% over previous day’s cost (yes, 1,000% increase in one day), and propane prices skyrocket over 60%.  To put things in perspective, the increase in propane price would be the equivalent of waking up and seeing the price of gasoline at the pump almost $2/gallon higher overnight!  That’s $4/gallon gasoline!

WTI crude prices broke through the psychological barrier of $60/barrel.  Gasoline and diesel spot prices also went on a run higher, chasing crude prices and the news stories of the day.  Overall, energy prices were shocked as if a hurricane decimated Texas and the damage from the subzero temps to crude refineries, wells, and pumps is still left to be determined.  We know that warm temperatures have landed in Texas and next week will be telling.  I do believe that prices will start to ease as the warmer temps move through the nation and production resumes.  But for now, we are trying to control our retail prices as best we can as the cost-increase shock works its way through.  Prices are moving as much as 40-60 cents per gallon in one day!  Please have patience as we navigate through the coming weeks.  I can assure you that if you call around and hear propane prices from companies that are a difference of 50 cents to a $1.00/gallon, it’s not crazy. The market is truly that volatile right now.  We are doing our best to hold our prices at the lowest averages possible to try and help our customers absorb these increased heating costs.  The good news is that I think by the end of next week, cost of propane will start to retreat, and we are not in a full propane supply crisis at the moment.  We are still able to deliver and do not see shortages or rationing on the horizon.

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

Best regards,

Jon Crawford

Extreme Cold Leaving Next Week

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Good morning,

I hope this message finds you safe and warm.  We are in the midst of the coldest week in winter and so far we are surviving without too many hiccups.  Our staff and driving team have been working overtime to ensure everyone stays warm.  We appreciate everyone’s patience as we continue into next week.  Hopefully temperatures warm up and we can all catch some relief from the bitter cold.

Crude oil prices continue to rise as vaccine rollouts ramp up and the economy looks to pop this year.  In addition, the continued talks of stimulus and printing more money is supporting higher crude prices.  There was talk of Iran and the US negotiating a potential nuclear deal again this week.  If a deal is struck and sanctions on Iran are lifted, there is a potential for crude prices to drop.  But talks are just beginning and I don’t expect any traction until summer.  For now, higher crude prices look like they are here to stay.

The rise in crude prices have continued to hold retail prices higher at the pump.  I do not expect to see gas or diesel prices drop at the pump for the remainder of the month.

Propane supplies have been tight but manageable.  Rail cars have been delayed and long lines at terminals have caused hiccups in distribution.  However, with warmer temps coming I believe the short squeeze on wet barrels of propane is starting to unwind.  In addition, the supplies at the main hub in Conway look like they will hold.  Record exports have dropped a bit do to the extinction of the arbitrage economics with Europe and Saudi Arabia.  I am hopeful for some price relief in March.  As a reminder, please make sure to keep your driveways clear and salted to ensure a safe and efficient delivery of your propane.  We appreciate your help as we are entering the final lap of winter.

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

Best regards,

Jon Crawford

Up, Up, and Away!

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Good morning,

I hope this message finds you all safe and warm.  Dangerously cold weather will be entering our area all of next week.  We have taken precautions to prepare and we are ready to serve our customers through what will probably be the toughest week of the winter.  If you are a call-in customer for propane or fuel oil, please make sure to check your tank.  Usage will be dramatically increased next week and with the negative temperatures over night, running out of fuel can cause a house to get cold quickly.  In addition, please make sure to have your driveways clear and salted if necessary.  Our drivers are very busy and want to make sure they can safely and efficiently deliver to as many customers as possible.  We appreciate your help!

In the news, WTI Crude prices have broken through $55/barrel and are approaching closer to $60/barrel.  As I have been writing, there is much more upside risk to crude prices than downside.  OPEC+ is holding firm on production cuts.  Production in the US has been slowly increasing, but not much.  The economy is looking to be holding and gearing up for a recovery with strong fuel demand.  And the Senate just passed Biden’s COVID Relief Package which gives further support to jumpstart the economy but also potentially at the expense of devaluing the dollar.  Any devaluation to the dollar raises crude prices, as crude prices are traded against the dollar.  Therefore, the relief package is a potential double-whammy to crude prices: increased demand and devaluation of the dollar.  As I have been writing, I believe the days of retail gasoline under $2/gallon are behind us.

In local retail news, gasoline retail prices are averaging near $2.29/gal and diesel retail prices are averaging near $2.59/gal.  I do not expect to see any price relief at the pumps in the coming week.

Propane prices are under a lot of pressure.  Exports continue to remain strong and with the recent cold snap in the Midwest and Northeast, Conway “wet” barrels are getting harder and harder to procure.  The spreads between Conway and Mt Belvieu are widening again to try and keep propane in Conway as opposed to going south and out the door in exports.  But with the recent surge in demand throughout the Midwest and Northeast, I do believe that propane prices will remain high until winter crosses the finish line.  The only possibility for price relief is to see temperatures in the Midwest and the Northeast go to above normal at the end of February or beginning of March.  If not, I feel that current retail prices are here to stay and possibly get higher.

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

Best regards,

Jon Crawford

Holding Steady

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Good morning,

Crude prices have remained largely unchanged for the week.  Prices have traded in a very narrow range as vaccine distribution, information on new COVID variants, national crude oil inventories, and economic data were released.  I do believe a $50/barrel floor in WTI crude prices is very solid at the moment.  Although there is much uncertainty with the new Covid variants, the vaccines in current distribution seem to at least cause less severe illness with the new variants.  Commodities are taking a bullish tone to start 2021 and I tend to agree.  The road will be bumpy with vaccine rollout and there will be still be more infection.  However, if the data holds true, severe illness will less, especially with the introduction of the J&J vaccine that only requires one dose.  The one potential downside risk for crude hanging out there is Iran.  Pres Biden has made it clear that he would like to negotiate with Iran on a new nuclear deal.  If a deal is made and sanctions are released on crude oil exports, the market could be flooded with crude at a time of rebalance and careful production cuts.  If this happens, I do think any downside movement would be short-lived.  In summary, I still believe that there is much more upside risk than downside risk for crude oil prices in 2021.

In local retail news, retail prices of gasoline and diesel are holding steady.  I do not expect to see any major movement at the pumps in the coming week.  I also believe that gasoline prices under $2/gallon are behind us.

Propane prices have balanced somewhat from the “short squeeze” in January.  Although retail prices have dropped a bit from multi-year highs, I don’t expect them to drop too much more very soon.  I tend to think that prices will slowly unwind as we finish up winter.  The weather in the Midwest and Eastern US has been so unpredictable.  However, the demand from China and other parts of Asia has started to let up as they finish up a cold, hard winter.  And the arb on American exports has brought European propane back into the competition, so American exports have the potential to slow a bit in February.  For now, all eyes are on February.  As a reminder, please keep your driveway clean and a clear path to your tank to ensure a safe and efficient propane delivery.

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

Best regards,

Jon Crawford

 

New President and Propane Short Squeeze

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Good morning,

I hope this message finds you well.  The crude oil market ended the week fairly flat.  WTI prices are holding above $50/barrel and I do believe the current floor at $50/barrel will hold.  As demand for crude looks to increase in the coming months, as well as President Biden’s plan to print more money for stimulus, I expect crude prices to move higher.  The two scenarios that could potentially cause a collapse in crude prices are new variants of COVID-19 spreading that resist vaccines or OPEC increasing production faster than anticipated.  For the time being, the vaccines seem to be handling the new variants.  And we seem to have a plan in place to roll out distribution faster and more efficiently.  If the US is able to meet or exceed 100M doses administered in the next 100 days, the US has a shot at returning to more normalcy by summer and into the fall.  If lockdowns in Europe and emerging markets continue to depress demand and OPEC increases production, we could see the bottom fall out of crude prices.  However, Saudi Arabia, the largest swing producer, has made it very clear this month that their intention is to not let that happen.  For now, I think we have a very firm floor on crude prices with much more risk to the upside than the downside.

In local retail news, gasoline and diesel retail prices continue to hold firm.  Gasoline retail prices are mostly over $2.19/gallon and diesel retail is holding firm around $2.49/gallon.  Once again, I do not expect to see retail prices go down in the coming week.

Propane is continuing to experience a “short squeeze” due to record exportation out of the Texas hubs.  The cost of propane out of the Midwest hub continues to skyrocket in order to keep supplies from being shipped south for exporting.  Propane cost has risen almost 40 cents/gallon in six weeks!  I do not expect to see this continue through February.  There are already rumors of canceled and decreased purchases from China and others in February.  The only wild card is the weather.  If local demand stays very strong, we could see some support in prices holding.  However, the forecast for February seems to be warmer than normal.  I do not expect to see production slow down, so for now, we will wait and hope February brings some price relief.  I am hopefully that the current retail price will be the highest for the season.

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

Best regards,

Jon Crawford

Conway Propane Price Blowout

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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

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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!

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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