FUELSNews 360° Q3 2018 - Overview: July through November 2018

O V E R V I E W - July through November 2018

The second half of 2018 has been quite eventful – reaching both the highest and the lowest prices of the year within a few weeks of each other.

July began with some quick volatility as both Canada and Libya experienced production outages amounting to a combined 1 million barrels per day (MMbpd). In response to the outages, Trump tweeted that Saudi Arabia had agreed to increase production by 2 MMbpd – which the kingdom quickly denied, though months later the nation did up its output.

By late July, geopolitical tensions were broiling. Iran’s President Rouhani said in a speech that any effort to cut off Iranian exports would be met with the “mother of all wars,” to which Trump responded with an all-caps tweet not to threaten the U.S. With this exchange fresh in the market’s memory, a Saudi tanker was attacked by Iran-backed Houthi rebels in the Bab el-Mandeb Strait, one of the largest oil chokepoints in the world. Fortunately, those conflicts did not escalate to broader tensions, and geopolitical frictions cooled thereafter.

2018 Market Summary

Source: New York Mercantile Exchange (NYMEX)

6 © 2018 Mansfield Energy Corp

Overview

Conflicts calmed just in time for Trump to take center stage in the global theater. In early August, Trump’s first round of snapback sanctions on Iran took effect, cutting off Iran’s access to global financing. Iran responded quickly by declaring they would not start a war with the U.S., but they also would not negotiate with a country that had violated the multilateral nuclear deal.

Not long after feuding with Iran, the U.S. officially fired the first volley in the U.S.–China trade war, applying tariffs to $16 billion of goods. That conflict continued escalating through September, when both countries escalated tariffs to cover an additional $200 billion in goods.

In late August, a subtle yet important policy change occurred. For years, Saudi Arabia has been working toward the initial public offering of its state-run oil company, Saudi Aramco. In August, though, the Saudis announced their plans to postpone the IPO until further notice. Many have speculated that the Aramco IPO was a major driver behind Saudi Arabia’s push for OPEC production quotas. Markets had looked forward to the increased transparency from the IPO, but now will have to wait a bit longer before they see the inner workings of Aramco.

By September, hurricane activity began to pick up, as covered on page 8. September headlines were dominated by hurricanes, Iran sanctions hype, and trade talks.

Q3 saw WTI crude prices continue their march higher, climbing roughly $1.50 above their Q2 average and $21 above Q3 2017. Diesel prices also rose marginally higher, up 3 cents from Q2 and more than 50 cents year-over year.

Gasoline was the outlier, with Q3 prices actually falling somewhat relative to the previous month. Gasoline prices are highly seasonal – summer gasoline requirements cause prices to jump up in March and fall in September, making Q3’s decline predictable. •

Quarterly WTI Crude Prices

Source: New York Mercantile Exchange (NYMEX)

Quarterly Diesel Prices

Quarterly Gasoline Prices

Source: New York Mercantile Exchange (NYMEX)Source: New York Mercantile Exchange (NYMEX)

7 © 2018 Mansfield Energy Corp