Publications: Notes at the Margin

The Midland Crunch (October 14, 2019)

Writers for the various price-reporting services may have ignored this development, but an economic crunch has begun in Midland, Texas. The numbers do not lie. Excess returns to storage in Cushing and Houston eased last week more than in the North Sea. The changes are small but probably meaningful. Buyers are bidding harder for nearby North Sea crudes than the more distant US crudes given the high shipping cost. The pain of higher freight costs will be increasingly felt in US crude markets.


The US Treasury placed two subsidiaries of China’s Cosco Shipping company, as well as other Chinese maritime transport companies, on its sanctions list on September 25. The sanctions were imposed because these firms have been moving Iranian crude. We believe crude oil prices, particularly those in West Africa and the United States, will come under intense pressure in the coming weeks as a result of these sanctions. WTI could drop below $50 per barrel.


Last year, the Trump administration threw soybean farmers under the bus in pursuit of its trade war with China. This month, it is throwing US oil producers in the same place in its battle with Iran. Who is next? Once again, US policies are causing the greatest harm to US businesses.


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