Chicago Price Spikes and OPEC

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

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