OPEC, Chicago Pipeline, and Propane Supply

Good morning,

Crude oil prices have continued to rally on OPEC’s compliance to cuts. Saudi Arabia and Russia continue to commit verbally to cuts through all 2018. However, OPEC has not taken an official position to extend the cuts past March of 2018. Many investors are buying into the market on this news causing WTI to near the next resistance price of $55/barrel. However, the U.S. has continued to increase production and exportation. The U.S. completed their first shipment of crude oil to India. The U.S. crude oil production will set a new record by year’s end and does not show any signs of slowing down, especially with their new customers in Asia. As long as the spreads between WTI and Brent continue to be wide, the U.S. will continue to have the advantage on the open market while forcing OPEC to discount their exports. The geopolitical issues of the Middle East and North Korea seem to be in check and not offering to many purchase jitters. Without any significant change in demand or production, I don’t see WTI being able to push through $55/barrel. Time will tell.

In local news, the Explorer pipeline carrying gasoline out of Chicago went down last week causing the price of gasoline to spike over 30 cents/gallon. Retail prices will continue to climb dramatically until the issue is resolved. Right now there is no news on a completion date of the repair. We are hoping by the end of next week. In the meantime, I would prepare for temporary high retail prices on gasoline. Diesel cost was mildly affected, but supplies seem to be more ample. Once the repairs are completed and the refinery issues in Chicago are completed, I expect over a 35-40 cent/gallon drop in gasoline cost and potentially 10-15 cent drop in diesel cost. Hopefully everything will be back to normal before Thanksgiving and the start of holiday driving season.

Propane supplies had their first disruption this week as well. The West leg of a major pipeline went down for repairs causing massive outages across the Midwest. These outages caused companies to move across State lines and emptied supplies at some terminals in Wisconsin. We are supplied through multiple terminals, including various rail terminals which are strictly allocated. Therefore access to supply is not currently an issue for Crawford Propane. Prices for propane surprisingly have peaked for a bit. However, those who contracted as advised are sitting very good so far this year. There is some potential for price relief in November if temperatures warm up and corn drying diminishes.

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

OPEC, Chicago, and Propane Prices

Good afternoon,

I hope this message finds you all well. Over the last week, OPEC has continued to promise that they will work together to draw down the glut of crude across the globe. These statements are feeding the floor of $50/barrel set for WTI. However, the U.S. is continuing to export record amounts of crude oil. As long as the exports of crude from the U.S. continue to be strong and the spread between WTI and Brent remain large, OPEC will have to extend cuts in order to draw down global inventories. Without a major demand increase event, I don’t see much more upside left in WTI this year. The only major geopolitical event sizzling out there is the Northern Iraq conflict with the Kurds over the control of the oil fields and pipeline feeding Turkey. If this conflict escalates into civil war, we could see a bump up in crude prices across the board. In addition, at these current prices speculators have now made money on the WTI trade, so as we go into the end of the year some speculators might exit positions and cash out knowing that their starting base price for next year is already at a potential peak with not a lot of upside potential. In addition, demand tends to decrease going into winter causing another headwind for crude prices.

In local news, the November contract reference month finally expired at the Chicago exchange, and spot prices fell accordingly as I predicted. I still see about 10-15 cents of inflated spot pricing on both gas and diesel out of the Chicago exchange. So I would expect to see retail prices start to ease going towards Thanksgiving as long as some major supply or geopolitical issue doesn’t surprise the crude market. Gasoline prices are averaging around $2.37/gallon in the area and diesel is averaging around $2.75/gallon.

Propane has found some temporary support with corn drying demand and some colder weather. Delivered prices are now again at a new high for the year. However, at these prices, manufacturing could possibly start switching to different chemicals for production giving some potential relief to the current propane price. For now, I am thinking we could see some lower prices on propane towards Thanksgiving, but higher again into winter. If WTI crude falls back below $50/barrel, we could also see some relief on propane price. But WTI will have to fall at least $3/barrel in order for that to occur.

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