Crude close at $21.51 on Friday, but is trading just above $20/bbl this morning as more selling is pushing the markets down after the federal government announced that ‘quarantine’ measures would be extended on a national basis until at least April 30th.
The stock market is in the black for the day so far, which is a bit of positive news.
Propane values were fairly steady last week, but their values relative to crude oil have swung wildly over the past week or two, as can be seen in the graphic above. Both markets have seen their values swing over 10% high to low and back to high again. Crazy times indeed.
Jon Miller and Chris Cox will release a new Propane Buzzcast tomorrow and we will discuss some of the challenges facing our industry right now, as well as what could impact us this coming winter when demand picks back up. One possible challenge could come from the oil and gas refining sector; how much will propane production drop this spring and summer as refining is going to be under significant pressure as many producers are facing some harsh financial realities.
This article from John Kemp of Reuters highlights some of those refining challenges. From the article:
‘Hedge funds began trimming short positions in petroleum last week as crude oil prices fell to crisis levels for some producers and refiners and traders started to anticipate shutdowns at oilfields and refineries…In the course of this month, U.S. cash crude prices for oil delivered to the Cushing storage hub have fallen to their lowest since the first oil shock in 1973, after adjusting for inflation…Ultra-low prices and fast rising stocks mean current prices and production are unlikely to be sustainable for very long, forcing some field production to be shut in and refineries to cut processing.’
You have Plains All American sending letters to suppliers, asking them to scale back their output…you have oil storage very likely to be full this summer and nowhere for that extra crude to go.
Simply put, whatever history you remember or how the energy markets have dealt with past calamities, all of that is thrown out the window in the face of this unprecedented destruction of energy demand. We’ve never seen anything like this before, and you’re looking at another month of calamitously low demand here in the United States…and even if there is a return to a ‘new normal’ in May as the economy and work force ramp back up, one would be naive to think we just snap our fingers and return to February demand levels.