Good morning,

Happy Thursday. Oh, what a difference a week makes. For the past few weeks the markets have been digesting the OPEC cut extension set to move through 2018. These cuts are looking to remove a giant glut of crude in the world marketplace and bring the fundamentals back into a shortfall scenario. The “fly in in the ointment” is non-OPEC production in 2018, and most importantly the United States. The IEA came out with a bearish report for crude going through 2018. The IEA predicts that the non-OPEC supply of crude will rise to 1.6MM barrels/day versus the 600k in 2017! This incredible surge in production could potentially wipe out the cuts from OPEC by mid-year in 2018. OPEC concurred that the non-OPEC production, particularly from the U.S. is of concern. One potential scenario is that if crude grows to surplus inventory again, Saudi Arabia and Russia will go toe-to-toe. Russia will want to increase production to flood the market and wipe out future production for the U.S., and Saudi Arabia will threaten to cut as much as Russia over-produces to keep the market in balance. Saudi Arabia likes the current crude price for their IPO offering in 2018, and Russia does not like this price because the U.S. is starting to take their customers.

In local inventory news, the EIA showed another dramatic drop in U.S. crude inventories, but an incredible build in gasoline. The offset displays the robust refining margins on the current crack spread for WTI and the WTI/Brent spread for export. Propane inventories actually showed a small increase during one of the highest potential demand months of the year. Propane markets are starting to sell off a bit due to the lack of demand events that were predicted. We are not in the “falling knife” scenario yet, but if January doesn’t get cold, I expect propane prices to fall dramatically.

In local news, gasoline prices continue to remain stable and fall slightly averaging around $2.25-2.29/gallon. Diesel prices remain below $3/gallon, even though most sites are using winter additive and #1 oil for winter blending which increases costs. I predict gasoline to be around $2.25/gallon for Christmas. Propane prices are starting to move downward, but still well above contracted prices. Therefore, all customers who have contracted their fuel have done very well in the first half of winter. January through March is yet to be determined as demand has yet to show itself due to warmer temperatures.

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