Energy Market Updates

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FED rates

World Tensions & Workforce Worries

With the inventory report delayed due the Monday holiday, we were able to enjoy the recent correction in pricing for another day.  We are about $.11 cheaper today than a week ago and $.25 lower than two weeks ago, basically back to where we started at the beginning of the month.  Interesting to note that we are right around the same spot as we were a year ago this time.   It is almost as if the market has priced in the ongoing world tension and once again is looking at more fundamental sources of influence.  The last week was like the most aggressive in terms of shipping attacks, retaliation, and a war of words, yet futures overall are lower.   Additionally, we are coming up on the two year anniversary of the Russian invasion of Ukraine with little or no end in sight.   Traders instead are focused on FED rates and demand figures that still appear to be bearish in nature.

Locally, real concerns about adequate workforce for the forthcoming Spring and Summer is a common theme amongst folks I talk with. Lean and mean is the approach that most have come to accept as the shortage for many is here to stay. DKB is very fortunate to have a full staff of Dispatchers, Drivers, Customer Service and Sales that is dedicated to providing you the service that you have come to expect.  This is a 24x7x365 business, and we pride ourselves in being here for you when you need it most.  While some take a break or breathe a sigh of relief that the winter has come, and almost left, without any major disruptions, we are already looking ahead to when the grass turns green.  No rest for the weary!

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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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Why the Surprise Down Day? The Devil is in the Details

At first glance of yesterday's inventory report you would assume that a solid up day was in the making.  As has been the case, the devil is in the details.  While all products showed modest drops, they were largely offset with massive exports, known refinery maintenance and switching to winter grade gas.  The largest market mover was the FED maintaining rates but signaling they expect possibly 2 more rate hikes in the coming months.  A large sell-off took hold pushing diesel futures down almost $.10 before settling down just under $.05.  The profit taking ideology is that if rates get higher, it dampens economic growth thus curbing overall fuel demand, add in that it makes it more expensive for foreign currency buyers of products. 

Additionally, truck tonnage was down 2.3% in August, marking the sixth straight month of year over year declines.  Many point to last year being a shipping anomaly coming out of COVID, but it is still hard not to take into account the declines.  Even though we are seeing a rebound today, expect a choppy downward progression as we close in on the winter months.  Speaking of winter….. It’s not too early to start thinking about winter product and the associated costs.  Availability of Kero as a blending component appears to be a concern for many.  Feel free to reach out to discuss how we can assist and also talk about pricing next year's needs. Schedule a Meeting

 

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A Tale of Two Products: News Variables Push Finished Products in Opposite Directions

Depending on the News outlet you watch or read, you will hear two very different narratives.  The one where “prices rises as Idalia makes landfall”….. or “soft demand figures push futures lower.”  It really a tale of two products right now between gas and diesel. 

Gas is more consumer centric while diesel is tied more to the Industrial world.  One is rising while the other is starting to fall.  Quick note, hurricane Idalia had little to no impact on any petroleum facilities in the Gulf or in the Mid-Atlantic, just more of a news gimmick to grab your attention. 

Consumer spending, thus gasoline demand, has been surprisingly resilient this Summer, as many of us thought that demand would crash as unemployment rose.  That really hasn’t happened and hints that the FED may still raise rates one more time are starting to come out.  While gas futures have risen roughly $.60 since the beginning of summer, it doesn’t compare to the over $1 rise seen on Diesel.  Diesel has had an unconventional run this summer.  Soft demand and varying inventories have kept pricing elevated for reasons I can not understand.  The last three days have shaved off almost $.20 in pricing and I would like to hope we are starting a nice correction in the coming weeks. 

Keep in mind, as the front months retreat, it will not be as pronounced in the outer months.  For instance, yesterday front month ULSD dropped $.11, yet MARCH24 ULSD only fell $.01.  Steep backwardation has reemerged in the diesel pit, next summer pricing is roughly $.40 lower than current. 

Two thoughts remain, will this prevent some from bringing in product again and see outages or suppliers sitting on the sidelines and also does this represent a buying opportunity for next summer needs?  We will have product for sure, and we are always willing to talk on securing some pricing. If you want to schedule a meeting to discuss your specific needs or questions, you can do so here:  Schedule a Meeting

 

ULSD 8.31.23

 

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Markets Shrug off Coup Attempt & Get Back to Fundamentals

Fuel markets appeared to have shrugged off what could have been a historic week, should an actual Coup attempt in Russia transpired.  The current market mood appears to be focused more on actual supply and demand factors.  Crude inventories showed a massive 9m barrel loss this week while finished gas and diesel were relatively flat.  Gasoline futures soared yesterday taking ULSD  along for the ride, although not as much. 

Again, we are still in this range since early May as demand figures temper any long run increases.  While diesel demand is at a 6 month low and is over 7% less than last year, gasoline is up almost 4%.  Some attribute the gasoline rise to more people returning to the office regularly.  As we say often, diesel usage in the U.S. is the barometer of the economy and if that is soft, so goes the economy.  That, along with hints of another FED rate hike are keeping future pricing in check. 

The price backwardation that affected distillates for so long has found its way into the Gasoline market, far more than the normal product seasonality we typically see.  Again, this limits most from bringing in gasoline to storage as the hedge costs are not justifiable and outages can occur.  The right size tank, and a strong supplier relationship will always get you through.  Look for the day to day swings to continue as we head into the summer driving season.

6.29.23 ulsd

 

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Mixed Signals on Fundamentals in the Markets

After hitting yearly lows last week, Diesel pricing has risen over $.15 in the last week.  As expected, bargain hunters typically buy in regardless of fundamentals.  The increases have been muted somewhat as there is still that languishing fear that demand will fall off the proverbial shelf in the last two quarters. However, this weeks report showed that gasoline and diesel demand in the US remains somewhat strong, posting gains over last week and last year.  While both products showed draws in inventories this week, and Crude showed a solid increase, that appears to more of a factor of less refinery production than anything else.  Inventories for all appear stable with the exception of the SPR which is expected to begin repurchasing soon. 

While recent Inflation numbers dipped below 5%, down for the 10th straight month, it is still much higher than the FED sweet spot of 2%.  My sense is the street is correct and we will not see another rate hike in the coming months. 

Gas will start to take the lead as the summer driving season kicks off and it will be interesting to see how Americans will act ahead of relatively unstable future.  Moreover, how will the commercial sector be affected?  Speaking with a number of Customers in various fields, most are “cautiously optimistic” about the upcoming months.  Work is steady, pricing is palatable, but labor remains tough.   DKB can assist with mitigating some of the uncertainty, please do not hesitate to reach out to discuss.  Expect sideways price movements for the next week with a wide rage of $.20 on both products.

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Demand Forecasts and FED Policy impacts outweigh Fundamentals

Typically Inventory levels and price direction have an inverse relationship.  When Inventories rise, prices fall…. When Inventories fall, prices rise.  As one said, “this ain’t no typical market”.   

We said several weeks ago that market direction would weigh heavy on OPEC and FED policy and we see that now as fundamental factors are temporarily moved aside.  With Distillate inventories falling by 1.2m barrels and gasoline rising by 1.8m barrels, most are focused on what is said to be the final rate increase of .25% by the FED.  This is the tenth increase in just over a year.  Demand for finished products is starting to wane year over year, signaling to some that a real slowdown is imminent and FED policy is, for lack of a better term, working

Diesel pricing has fallen about $.40 in the last two weeks, and for most of us it is a well needed reprieve.  However, this is the fifth “bottom” we have seen in a year, (see chart) does this mean we will see a buyback in the next several days?  With true Russian export numbers showing robust shipments, highest since 2019, I would suggest that the global market is well supplied and demand forecasts are the true driver in the marketplace. 

Look to see pricing stabilize over the next few weeks (again with large day to day movements) as you will start to hear more and more on the labor market and unemployment figures, which is the collateral damage of rising rates.  While the supply picture is much improved in the region, it is still crucial to be in communication with your supplier as many are employing a “just in time” resupply approach.  It will also be interesting to see how the pending credit crunch will affect our industry.  Having a reliable, well supplied fuel provider, like DKB, will be key in the last two quarters of the year.

ulsd 5.4.23

 

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"Surprise" Production Cuts Raise Inflationary Fears (Again)

Oil markets moved higher this week primarily on the “surprise” production cut announced Sunday evening.  Recall two weeks ago we cautioned   “ All eyes will be on the FED and what they announce in the next meeting, more rate hikes or not?  Also look to see if OPEC+ decides to cut production to bolster prices in the coming weeks.”    

It wasn’t the shock of a million barrel cut, more of the agreement that Russia would extend their already in place cut of 500k bbls for another six months, thus totaling the Cartels cut to 1 million.  Fear not, it has been a very long time since OPEC has actually adhered to output quotes.  Most of the time the money is too good to pass up for many Nations. 

The fear with the cut is that Inflationary risk will rise as overall cost become higher.  As US manufacturing activity fell for the fifth straight month, coupled with yesterdays Inventory report showing Refining production slowing, it might signal that Inflation will continue to rise as demand remains high.  I tend to think about it differently (hold your comments) - If the cuts raise fuel prices, and people have to spend more on gas, heat, power, etc….  wouldn’t that force them to have less to spend on discretionary items therefore pushing down demand and subsequently lowering inflation?  We will leave that to people much smarter than me.  (Again, hold your comments). 

The draws across the board with inventories yesterday didn’t help any as futures again rose and we sit about $.10 higher than we did Monday morning.  As cooler heads prevail and the mentality shifts back towards the overall healthy of the economy in the months ahead, expect sideways daily pricing moves with a wide range from high to low.

4.6.23 ULSD

 

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Futures Stay RangeBound, but Fed Hikes Threaten Demand Growth

Futures markets appear to be content with being rangebound as the last month has seen us bounce back and forth by about $.25 in Diesel.  The last four days has seen diesel futures fall almost $.15 in value. 

While the Distillate inventory report this week showed a slight gain of 200k barrels, the real news was in demand.  Distillate demand dipped about 8% from last week, which is down almost 23% from this time last year.  Demand and FED interest rate adjustments appear to be top of mind for most.  With the FED Chairman stating that recent economic data was stronger than expected, he alluded to the fact that more rate hikes will be necessary to calm inflation.  Traders took this as a sign that it will limit growth and subsequently, demand, thus the sell off. 

Still, outward diesel months are hovering around that $2.65 level we talk about, but even more interesting is that Backwardation (outer months being cheaper) has been all but erased for the second and third quarters. (see strip below)  As we transition back to summer diesel, the hope for most of us is a less volatile market.  Unfortunately, we have seen too many times a spike follow what appears to be a calm period for any number of fundamental or technical reasons.  Having a supplier versus a marketer is, and always has been, the best course of action in dealing with volatility.

 

3.9.23

 

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