Energy Market Updates

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

It is difficult sometimes to stay positive when you see your fuel bill increase $.70 in a month, but recall how we said “Hope’s not a four letter word”.  The last five days (not including today) have seen about $.15 in value come off in diesel pricing so hopefully we are on our way to a modest correction.  It is even more difficult to make clarity of market factors, as most times, human sentiment moves pricing more than data.  With a large Crude drop of almost 6m barrels per day, one would assume a modest increase in futures yesterday.  Not so, as weekly numbers are often subject to sharp swings and monthly numbers are more reliable.  Monthly diesel demand appears flat to slightly down.  The market shrugged off the Inventory data and focused more China lagging economy and Fed policy. 

In terms of staying positive, My Team recently read a short book, The Go Giver.   An easy read with 5 laws on giving.  One point is the Law of Influence, where you put other people’s interest first. We work with and for, a wide range of Customers and actively promote our Customers Goods and Services to others we come across.  These referrals overtime help cultivate a large network of Individuals and Companies.  I encourage everyone to think about referrals in their business dealings, you’ll be surprised in the returns.

While we are seeing some buy back early today and the Index up early, longer term I “hope” to see the correction to continue as the summer draws to a close.

Starting off this week it appeared that we may have seen the top of the recent rally in the Commodity sector.  That changed Tuesday morning as the EIA released a guidance report that they expect US crude production to increase an additional 200,000 barrels per day based on….. yep, higher prices.  This fueled the indexes in a self-fulling prophecy sort of way and turned around what was a $.05 down day to a $.07 up day.  The buying carried over to Wednesday as the inventory report showed a solid increase in crude stocks with the products showing losses.  Key note on the crude gains is that it looks to be largely due to slashing exports.  Something we have been saying might be a prudent step for a while now.  Distillates are now $.80 higher than July 1^st, erasing the steady 8 month decline that we have enjoyed.  Sentiment is fixated on Saudi led OPEC cuts and appears to shrug off any fundamental data.  It’s almost like mob mentality really.  Crude builds, soft demand, economic uncertainty, should all push prices lower. 

As someone once told me “high prices are the cure for high prices” and it is hard to see this rally continue.  Backwardation remains with both gas and diesel, you could see end of month outages.  A supplier dedicated to the Commercial End User is definitely someone to have in your foxhole during these times.  Again, I always enjoy speaking specifically about your needs, please do not hesitate to schedule a quick talk below.

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There is no sauce that can make crow taste good.  I’ve been holding to the mindset that Diesel futures market should correct to the mid $2.30s for about a month now.  We have risen over $.50 in that time with every day for the last two weeks being up.  Well, I am going on “the bound to win” theory and sticking with it! 

Strong economic data has pushed commodities as US GDP grew 2.4% last quarter, thus continued higher demand equals higher prices.  On the other hand, the FED hiked rates another ¼ percent this week which should be bearish for the products.  It appears to be overshadowed by the view of many that this is the end of the hikes as the Fed Chairman noting that “Fed staff no longer were forecasting a recession later this year, as it had in prior months.” 

Throw in the inventory report that showed stocks fall across the board and demand surprisingly resilient, the $.20 jump the last few days is easily explainable.  Gasoline is in the same boat, rising almost $.50 is the last month.  It is important to acknowledge how long, or how well, will OPEC+ countries be able to maintain their self-imposed production cuts as many Nations economies are negatively affected by them.  Saudi Arabia only is down over 8%, and the fact that all these countries are continually wrestling for market share, this could bring on a huge correction in prices.   

High prices are fun for nobody, we at DKB understand that, and work hard to provide outstanding service at a fair price.  I am always willing to discuss how we can assist your specific needs, please do not hesitate to reach out. If you would like to schedule a time to talk about your specific needs, you can pick a time that works for you best using this link: Market Talk - Set a Meeting

Fuel prices sit about $.30 higher today than the beginning of the month as we broke out of the comfortable range in MAY through JUNE.  The three week rally can mainly be tied to production cuts, unpredictable inventory reports and mostly an optimistic view on the overall health of the US economy.  The bright side is we are over $1.00 lower than this time last year.  The question remains, does this rally have any legs? 

In terms of production, it is a fine line where re-emerging producers such as Venezuela, Iran, and US shale jump in heavy to take advantage of the higher market prices.  And ultimately, do those barrels have any affect on the overall supply picture and will that additional product push prices down?  Personally, I think the real key lies in the demand picture.  Diesel consumption is down roughly 3% year over year, may not seem like a lot but it is noticeable.  Gasoline is actually up versus last year, but again, that may still be lingering COVID related adjustments. 

With major National freight carriers all seeing  volumes down significantly this year, and one facing bankruptcy, it seems likely that diesel demand will remain soft through the end of the year.  We could, possibly retrace $.30 to $.50 in value should this maintain.  (special note: SPR Crude is still about 150mbls lower than last year) 

We are in this odd place as some businesses are flat out and others are maintaining.  How much of that is staffing related is tough to tell.  Being able to pivot once again may be crucial in the coming months.  Having a supplier with product, trucks, staff, and multiple delivery options to meet all your fuel and lubricant needs should be a top priority as we move into the second half of the year.  As always, feel free to reach out to discuss your specific operation. (You can reach out by phone, or schedule a call at a good time for you using this link:  Schedule a Call )

It has been a tough start for many this summer, the heavy rains throughout the region have delayed projects, hindered marina activity, and limited travel in general.  New Englanders, like the market, are resilient.  We always find a way to bounce back, move forward and DKB will be right there with you. 

There seems to be somewhat of a divorce between what IS happening and what conventional wisdom says SHOULD happen in the fuels arena.  Production cuts, inflation numbers, and demand figures have all weighed in on the direction the last week.  The last several days saw diesel pricing break out of that $.20 range we’ve been discussing, unfortunately to the high side. 

Inventories showed a large increase on crude and distillates this week, with an eye on diesel demand being at its lowest point in months, a staggering 12% lower than this time last year.  Gas stocks were flat while demand fell about 8% to last week, again likely a weather related phenomenon.  These numbers SHOULD send pricing lower. 

A mixed sign on the Inflation front, JUNE saw inflation rise only 3%, its lowest gain in 2 years and a far cry from the 9% increase last June, and closer to the 2% FED target.  This SHOULD make futures rise as an optimistic view remains of  a stronger future.  But, most anticipate another ¼ rise in rates by the Fed, thus increasing borrowing costs and forcing holders of oil to sell product to reduce overall costs and SHOULD push futures lower.  The market appeared comfortable about $.20 ago and I would anticipate a return to that level in the coming weeks. 

I speak directly with a number of you everyday, a new feature we have added is to give you and your team the ability to book some one on one time to discuss your specific needs and hurdles.  Below is a link to book a call, TEAMs video call, or meeting…. I look forward to hearing from you!

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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.

The daily ebb and flow of positive and negative data continues to keep future distillate pricing in the $.20 range since early May.  Although we are on the high side of the range, current inventory and demand data might indicate a slight retreat in the days to come. 

Crude saw a large increase with the weekly inventory report, gas and distillates were also up 1% and 2% respectively.  Coupled with the FEDs non action on interest rates, we saw gains from Tuesday cut in half by Wednesday afternoon.  While economic data appears to be stabilizing, the FED did make sure to note that 2 more rounds of rate hikes are “not off the table”.  Demand still appears to be the unicorn nobody is able to catch.  After last weeks bump in demand, Distillates showed a sharp 6.3% drop over last week and down over 1% over last year.  Moreover, most are still looking at China’s rebuilding process with those figures not much clearer.  The reopening is robust, but nowhere near what it needs to be to get them back to pre-pandemic levels.   Many key banks have now cut their year end target prices for Crude and products thus keeping any large gains in check. 

What does this mean for you?  Short term, I would expect to maintain this range as speculative money doesn’t appear to be flowing into the market.  Refilling SPR contracts have begun to be sold, China and US demand is waning and Saudi’s just cant help themselves from producing product.  I talk with many of you throughout the week, feel free to reach out with specific questions or we are always willing to meet.

It appears that the Canadian Wildfires have spread a cloudy haze not just over the Northeast but also over the collective minds in the Fuel Markets.  The last few days produced data that simply put, has baffled market sentiment.  First to note, Diesel prices are roughly $2 LESS per gallon today versus a year ago.  Thus, one would assume production and inventories to fall.  This week’s Inventory report showed production is UP 2% and Inventories are UP 2.5%, yet future pricing is about $.20 HIGHER than a week ago.  Again, usually higher stocks trigger lower production and falling prices. 

Throw in that Saudi Arabia announced it was going alone and instituting an additional 1mbpd cut and domestic diesel demand is UP 4.5% over last year, this appears to have many bewildered as to market direction.  The other head scratcher is the US freight Index, which measures all shipping/freight volumes and is looked at as a barometer for the economy showed that we are DOWN 2.5% over last year.  How can demand be up, but freight be down?  Granted there are other avenues of usage, but shipping is typically the brunt of it. 

As we have been saying, we will likely be within this $.20 range from high to low for the next few weeks until some sort of clarity prevails.  We are keeping an eye on the developing backwardation again in both gas and diesel pricing. (outer months less then front months)  While we thought we were past this, it may start to limit what some bring into storage.  It is crucial to have a Supplier on your side rather than a Marketer.

As we mentioned, futures markets traded in a wide $.20 range for the last month and we are just about back to where we started on May 1^st.   Recent drops center primarily around a pending agreement on the National Debt Ceiling which is expected to roll through the Houses in the coming days.  More importantly to take notice, is that we have shrugged off the huge inventory losses last week and focused more on Chinese demand.  Reports that China’s manufacturing Index fell ½ percent signals the global demand for products and fuel may be slipping.  Domestically,  notes that the Labor market remaining tight may hint that the FED may lift rates in the coming week one last time.  And we might see a bump in Inventories this week unexpectedly as reporting can often get skewed around holiday weeks.  We are also seeing Canadian Oil fields restarting after being shut down due to wildfires.

There is always a vast array of news and factors that move the Oil complex.  Most of which is already 12 to 24 hours old by the time it gets reported on in the mainstream media.  It is important to have a trusted source that can offer a clear and unbiased picture of what has, and what is happening.   It doesn’t matter if you’re a small landscaper, midsize trash company or Large National Fleet, DKB strives to be that trusted source for you and your business.  In a recent survey of Trucking Fleet Managers, pricing and supply of fuel, reclaimed the number one issue facing their Industry.    With the countless other issues you have to deal with operating a business, I am sure we can assist you navigate the road ahead.

My overall sentiment for pricing remains neutral for the coming weeks.  OPEC, FED, JOBS(demand)… those appear to be the big market movers on the horizon.  With the outer months relatively flat, it may not be a bad idea to look at Q1 and Q2 fixed pricing for a portion of your needs.