Attack in Saudi Arabia

Good morning,

What….a…..week.  Over last weekend, one of the biggest fears in the oil industry came true.  A successful attack was made on the world’s largest oil refinery.  The refinery is also the bottleneck for exports out of Saudi Arabia.  Blame given to either Yemen rebels and Iran went back and forth.  The US condemned Iran.  Iran went ballistic on hearing the claim and threatened US bases in the area.  Trump responded with “we are locked and loaded”.  Saudi Arabia said they will retaliate as well.  Over 5% of the world’s oil supply was in jeopardy.  Crude spiked over 11% and gasoline and diesel prices were up over 15 cents per gallon.  The Middle East geopolitical risk factors were put on full display and traders were reminded of the powder keg that exists in the Middle East……. Then the world stopped and took a birds eye view…. The rest of the oil producing countries would be able to make up the difference.  The world economies potentially are slowing, lowering the impact of supply loss.  And the damage looks to be fixed in a month after thorough inspections on Monday and Tuesday.  By the end of the week, crude only closed up 7%!!!  That is absolutely insane!  In years past, this would have put $15-20/barrel on crude within two weeks.  Instead, crude closed up only about $3.50 for the week!  The truth is that Saudi Arabia is no longer the main controller of crude.  The US and Russia are main players and supply tensions are much easier to handle in our current environment.  In addition, this week shows the general fear of trade wars and slowing economies.  Not even a bomb on the world’s largest oil refinery was able to trigger a major breakout in crude prices!  What a strange new environment we live in!

In local news, gasoline prices at the pumps will rise a bit, but now much.  Gasoline supply in our market is strong and cost has calmed down.  Now diesel is a different story.  Our Chicago market cost has been 15-25 cents under our neighbors in Group supply.  The differentials disappeared this week and diesel cost has risen almost 30 cents per gallon!  I expect you will see diesel prices at the pump rise in the coming weeks.  Plus, as harvest starts, supply disruptions become a possibility.

Propane prices are slowly rising and will kick in to winter differentials at the end of the month.  Although current board prices are under contracts prices, you always have to remember that the contract price is an insurance policy against rising prices and is based on the average cost potential for the year.  For those of you who contracted, we have many months to go before winter is over!

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

Best regards,

Jon Crawford

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