Energy Market Updates

Posts by:

Mark Pszeniczny

Post-Holiday Recap: Navigating Global Sentiments, Mid East Tensions, & Winter Fuel Strategies

With the Holidays behind us, we would expect that we see more rational trading on the futures markets.  As mentioned, the last two weeks saw big swings due to low volume.  Still, futures appear to be stuck in this tug of war between what appears to be an overall sentiment of Bearish global demand versus the Risk Premium of Mid East aggression.   Strong increases three times in the last week are largely attributed to Houthis attacks on shipping lanes in the Red Sea.  Tuesdays increases came with reports of 21 drone and missile attacks, however it is to note that none of the launches reached a target, as all were neutralized well before any harm was done.  Still, the possibility exists.  Closer to home, inventories of finished product keep rising.  Gasoline rose over 19mbls in the last 2 weeks even with demand up 10% over last year.  Diesel is somewhat of a different story as inventories have increase for seven straight weeks, and sits about 12% more than last year, demand however, is down just over 10% from last year.  Trucking tonnage amounts to about ¾ of all US freight, and is “not expected to improve in the near future”. This has a significant impact on diesel demand and is often a barometer of the economy as a whole.  This may be a underlying reason for more downward pressure on the ULSD futures. 

We are in the midst of the New England winter and while it may cross your mind as to why you are buying winter fuel with it 40 degrees, I urge you to stay the course.  Temperatures can and do shift dramatically from week to week, the last thing you want is to get caught without any protection.  Reminder that there are still some Q2 and Q3 values out there if you are looking at solidifying your fuel costs, as always, we are open to discussing your needs at any time.

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Yuletide Ups & Downs: Unwrapping the Red Sea Ripples

It’s hard to stay in the Holiday Spirit with 5 out of the last 6 days being up days.  We now sit about $.20 higher than a week ago.  But if you believe in the trend that we have been in for the last four months, there won't be a lump of coal in your stocking in another week.  Rather, it would suggest that we will reach a new low. 

The recent rise can be solely attributed to the Houthis activity in the Red Sea.  A Yemen backed group that has been attacking both cargo and fuel ships in an area where about 10% of the world goods pass through.  This has lead to most majors “temporarily halting or rerouting” vessels away from the area.  Yesterdays gains were reversed with the Inventory report showing an increase in Distillate stocks and demand still about 5% less than last year.  Adding to that was the trucking index report, resuming its downward trend after a one month pause in October.  Don’t Ba Humbug yourself if you think you missed the chance to secure Q1 or Q2 gallons, have a number in mind what works best for yourself now, and when it approaches, execute.  Again, the long term trend still appears lower.  Stay in close contact with your Rep as the market moves quickly.  As we head into the last week of the year, from all of us here at Dennis K. Burke, Inc. we first say THANK YOU and wish you and your families a Safe and Happy Holiday Season!

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The Importance of Kerosene in Winterization

In a follow up from last week, I was asked by a bunch of people on an item I forgot to mention in winterization.  Kerosene.  Kero is a key component in winterizing diesel fuel as its cloud point is about -6F, significantly lower than standard diesel.  We use kero and diesel blends as a form of winterization throughout the region.  In recent years, the cost of kero has risen dramatically for a variety of factors such as lack of supply, over bought by airlines and it being a seasonal niche product in a backwards futures market.  DKB has supply and the ability to continue to provide these blends, no need to worry. 

Futures took a dive on Monday, with ULSD falling almost $.10 as concerns over the long term demand figures keep resurfacing like that annoying toy your got your kid for Christmas.  However, the market has a short memory and the news that the FED maintained rates and hinted at cutting rates next meeting provided a boost with futures having almost erased Mondays losses.  I would expect to see pricing stay within this range over the last few weeks of the year as it tends to be a heavy vacation time and traders settle up year end positions.  Diesel and gasoline inventories saw slight increase last week and demand was flat to slightly higher for both, giving support to an already charged index.  As many of us have already seen the first snow fall, please keep those fills and stairs free of snow and ice as you are never the last stop!

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Winter Diesel: Understanding Cloud Point, CFPP, & Pour Point

The long term fuel price trend continues to head lower with diesel pricing being almost $.20 lower than a week ago.  There is something in the orange that tells me we are not done. 

Recall, we don’t hit new highs and we touch new lows.  Inventories showed moderate increases for both gasoline and diesel, with demand showing its first increase in weeks.  Some demand uptick can be attributed to the start of the heating season.  That also means the start of winterized diesel fuel.  Not all diesel is the same and it is important to understand the language around winterization to keep your fleet running smoothly.  There are three key terms in talking winter diesel.  Cloud point, CFPP, and pour point.  Cloud Point is the most stringent and conservative temperature at which fuel will initially start to freeze by showing a haze or “cloud” of the wax crystals starting to drop out of the fuel.  Standard diesel has a cloud point of +15 degrees F.  CFPP or (Cold Filter Plugging Point) is the temperature at which the diesel will stop passing through a standard filter.  Additives, which have gained effectiveness over the years, can change the molecular structure of the wax molecules to prevent them from sticking together and allow them to pass through filters.  This temperature is usually significantly lower than a cloud point.  Pour Point, is the temperature when diesel loses its ability to flow.  At this point you aren’t moving.  This temp is often much lower than the CFPP.  So its important to know that if someone says the fuel is a -22F diesel, asking if that is Cloud, CFFP or Pour Point is important.  Securing Q2 pricing has gained some momentum with this recent dip, we are always willing to discuss your specific needs. Schedule a Meeting

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Winter Whirlwinds & Diesel Dips

Another wild day yesterday, and this week, as diesel futures traded in a $.10 range the last two days.  There is something to be said that when you walk into a meeting the market is up $.01 and when you walk out it is down $.08! As the December screen falls off and we look at January, the overall movement still appears to be to the downside.  Again, highs not getting higher and lows getting lower over time.  Inventories showed increases across the board this week with distillates leading the charge with a huge 5.2 million barrel jump.  Demand figures showed drops in both gas and distillates and again diesel down almost 18% compared to last year.  (Although, you wouldn’t know it judging by the endless Fed Ex and Amazon trucks showing up at my door). 

Keeping pricing elevated has been nervousness around what will come out of todays OPEC+ meeting.  Saudi Arabia has been pushing others for more cuts to support pricing as it appears to be tired of doing it alone.  Other members are not too sure if the timing is right at this point.  As you tear your World Famous Dennis K. Burke Calendar to the last page, it’s a stark reminder that winter is here.  Proper winterization of diesel is vital to keeping your fleet running.  We pride ourselves in being specialists in this area and are always willing to lend a voice for your area and what products are available.  We have seen relatively mild temps the last few winters but that doesn’t mean we should be lackadaisical about what’s ahead.  DKB is well supplied with all products to make sure your fleet is operational all season. If you'd like to set up a call or meeting to discuss what makes sense for your company, schedule the best time for you here: Schedule a Meeting

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Prices Slide Slow - but Backwardation Bodes Well for Fixed Options

Futures are up and walking, rather running, the last week after being paralyzed by conflicts abroad. 

Diesel has shed almost $.30 in value in the last week as finally people have started to take a real look at demand in the US.  The was no inventory report this week that could have halted the latest slide with the downward momentum spilling over to this morning. 

Up like a rocket, down like a feather.  Keep this in mind as we will have some buy back before hopefully getting to new lows. 

We are still about $.40 higher than early June and my sense is that the market will find a seasonal resting spot somewhere about halfway between.  A lot of attention will be on the FED’s next step on rates.  Many are thinking there might be one last hike before year end.  Backwardation remains, that can be a positive for you as there is value in securing outer months supply and pricing now.  With a backward market, the outer months do not typically come off as much as the nearer months.   Also, as demand wanes, the supply typically follows. With our thousands of Customers, we have to be well supplied, and we will be! 

As many of us leave to work and return home in darkness now, it’s a sure sign that the winter is coming.  Diesel fuel winterization is vital for any operation, and all of us at DKB are well versed in what it takes to have a smooth season and are always willing to discuss the options specific to your needs.     

 

11.9.23 ULSD

If you'd like to set up a call or meeting to discuss what makes sense for your company call anytime, or schedule the best time for you here:  Schedule a Meeting

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No Quick Fixes or Shortcuts

Not to brag, but I cook a mean steak.  Most hate the process, but enjoy the results.  It’s takes time and patience to get the perfect medium rare.  No quick fixes or shortcuts….  Same can be said about fuel pricing the last 30 days.  Even though diesel pricing is down over $.40 since mid September, it has been a real grind getting here.   The Israeli – Hamas conflict continues to be the flame keeping front month prices elevated.  As concern of this developing into a much larger regional conflict persist.  Domestically, fundamentals have kept pricing in check as Inventories have shown a mixed bag, but the real news is in the demand numbers.  Gasoline demand is down slightly over last week and last year, while distillate demand was down a whopping 8% to last week, yet up 5% to last year.  Trucking tonnage, the blood pressure of the transportation industry and overall economy, was down 4.1% in September over last year. (trucking is ¾ of all transportation modes in the US) this typically signals weaker pricing to follow.  Add in that IEA recently published they see peak Oil demand to hit in 2030, vastly different that OPEC’s estimation of 2045. 

A lot to digest, the takeaway may be that the summer run up in pricing was largely overdone.  Momentum begets momentum and before you know it you are $.50 higher.  Again, with the steep backwardation in the market, opportunities still exist in the spring and summer months to firm up pricing.   This winter may be tough as tight supplies and volatile daily price swings will rule.  Add in, what is expected to be an above average snow season, its important to have the right Supplier in your corner. One that not only has product, but the means to deliver as well.

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World Fuel Markets React to Escalating Hamas-Israeli Conflict

The obvious market moving story is the impact on world fuel markets of the Hamas – Israeli conflict that appears to be growing more intense by the day.  As traders are trying to digest what could turn into a regional mess, expect wild swings for the short term. 

At the root is how much, if any, was Iran involved as they have openly backed Hamas.  Furthermore, the US and others, have been turning a blind eye to Iran’s oil production in an effort to keep global markets well supplied.  It is a tight rope to walk for sure.  Putting downward pressure on markets in the US are revised demand figures that are now to said to be about 25% less than originally forecasted through the end of 2025.  For a variety of factors which we all are seeing on a daily basis be it better fuel efficiencies, alternative energies, or just a slowdown.  Additionally, it started to come out that Saudi Arabia is not abiding by their self imposed cuts, news struck that the Kingdom has agreed to fully supply several far east customers.   My sense is that we will bounce around this current range just below $3.00 on the screen before ultimately pulling back some more.

Even though pricing remains high in the near term, it still important to look further out.  Next spring distillate pricing remains significantly less than current pricing and some bargains might exist.  For budgeting purposes, bidding jobs, or locking in pricing, we can assist you for your organizations specific needs. Schedule a Call

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Buy the Rumor, Sell the Fact

A very different picture is painted this week after an almost $.18 drop in Diesel Futures posted yesterday, and another $.07 off presently this morning.  Prior to this, it appeared as though we were on a slow progression downward but instead the proverbial bubble burst.  Call it profit taking or a change in sentiment, it is clear that this correction is needed.  Should another heavy down day remain, we could be in for a return of pricing not seen since early May, which is about $.80 lower.  

The market should have seen some support yesterday with OPEC+ announcing they would maintain self-imposed production cuts through the end of November, however the market got an early Halloween scare with demand figures in this weeks Inventory report.  After promoting the narrative of tight supplies for months, most could not look past gasoline demand dropping 7% last week and down a whopping 15% to last year.  Distillates (all diesels) was down 4% last week and over 7% from a year ago.  Buy the rumor, sell the fact.  Diesel futures are down $.30 in the last four sessions and almost $.40 since mid September. 

A very important notion to understand is the persistent backwardation that is staying around longer than your in-laws.  November USLD is priced almost $.15 higher than January.   If it holds, this will prevent suppliers from bringing in excess or uncontracted gallons to the terminals.  In other words, their asset or investment (product), depreciates in value rather than gaining value over time.    As the closer months drop significantly, the outer months typically do not drop as much therefore leveling out the futures strip over time.  So there is some value to look at future pricing even with the high November screen. 

Again, always willing to have a call, in person or virtual meeting, to discuss your specific needs.  In this environment, you can never know too much. Schedule a Call

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