Saudi Arabia, U.S. Production, Asia, and Propane Issues

Good afternoon,

I hope this message finds everyone well. Saudi Arabia is really driving prices up in the crude oil market. Prince Mohammad Bin Salman surprised the world and arrested much of the royal family on corruption charges. One member arrested was the director of Aramco, the Saudi oil company scheduled for IPO in 2018. Prince Mohammad B Salman is trying to show his country and the rest of the world that the royal family will be held accountable to the law and no longer able to live above the law. He hopes his actions will show investors that their money will be safely invested in Aramco and not liable to corruption from the royal family. He also hopes to bring confidence to his people that the royal family will be held to the same standard of law as it’s citizens. In addition to the arrests, Saudi Arabia is calling for sanctions against Iran due to a missile launch this week from Iran. The instability in the Middle East and in Saudi Arabia in particular have added a $5/barrel premium to crude for the short and potential long term in 2018. The response is exactly what Saudi Arabia was hoping for.

At home, the U.S. is under pressure to keep up production to meet the world demand. Since the OPEC cuts, the U.S. has picked up the slack. One blink by the U.S. and prices could soar. Now, if one country in OPEC decides that Saudi Arabia is taking too much power and throws off the cuts, we could see the entire cooperation from OPEC crumble and take crude prices down along the way. For the moment, I am seeing WTI crude finishing near $55/barrel this year instead of $50. I do not think that right now is the time to lock in next year’s diesel pricing. I think opportunities will present themselves in December or January.

In local retail news, the supply issues are back in balance. Retail prices for gasoline are around $2.49/gallon and diesel prices are around $2.79/gallon. With the actions from Saudi Arabia, I’m not sure how much more relief in prices we will see before the holidays.

Propane supplies in Wisconsin were tightened due to a western and a southern pipeline issue. With the heavy increase in demand from corn drying, Minnesota and northern Illinois ran out of propane, so everyone came to Wisconsin. This caused major issues in the state and the governor issued an Extension of Hours to help haulers get product to the farmers. I expect the issues to subside in about two weeks. Prices have not been greatly affected. If warm weather hits at the end of the month, we could see some softening in the propane market. However, if cold temps come early, hold on to your seats. Those who contracted for the year are almost 20 cents/gallon under market price today.

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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