Energy Market Updates

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Keeping Positive Vibes for Negative Slides on the Screen

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.

8.17.23 ULSD

 

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Good News-Bad News See-Saw Keeps ULSD Range Bound (Still)

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.

6.15.23 ULSD

 

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Trading Ranges Stay Wide Amid News Cycling

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 1st.   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.

6.1.23 ULSD

 

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Sideways Action in the Markets as the Season Shifts

We suggested last week that there would likely be sideways action in the market as everyone digests what impact production cuts will have, and that is exactly what has happened.  We have seen large daily moves, but overall we are just about where we were a week ago. 

For most of us, we are coming into our busy season, putting boats in the water, paving or landscape crews coming back, large summer construction jobs, or more runs added to the fleet.  In my many discussions with customers, most are cautiously optimistic about the coming months.  The top two topics are still People and Pricing.  The Labor problem doesn’t appear to be going away anytime soon as most of us are doing more with less, and for the most part, getting used to it.  Pricing for physical goods has started to ease,  but those “services” we all rely on remains higher (again because of the labor market). 

Fuel pricing over the summer will likely be dependent on more fundamental forces than anything else as we appear to be at a comfortable price range.  China’s demand will be a major factor as currently Crude Imports are now at their highest level in over 3 years.  Domestic Diesel demand, while falling slightly week over week, is still about 8% higher than last year.  Physical fuel supplies remain in a delicate balance as a number of supplies try to navigate the stubborn backwardation in the futures market. 

The Supplier-Customer relationship could be tested over the summer should a well timed Hurricane hit the Gulf.  Spring is always a great time to do housekeeping.  A fresh coat of paint on the fill covers, cleaning away any shrubs from tanks, making sure steps are secure, always helps us be able to serve you better. 

4.13.23

 

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Market Searches for Range Amid Mixed News Signals

We are now a year removed from Russia’s invasion of Ukraine, and like many times in the past, we seemed to have made it through an extremely volatile period.  Since the onset of this “new normal” we have stressed the need to have a strong relationship with your supplier to help navigate the ever changing landscape.  Recall that we said the $2.65 level for the ULSD contract is a key support level, we have now hit that four times and bounced off it (see below) and the market is truly searching for direction with a $.25 range the last few weeks. 

A bevy of news is swaying the daily and intraday moves.  Russian price caps on crude sales, on the surface, appear to working as they continue to find more means of revenue to fund what looks to be a prolonged campaign.  Yesterdays Inventory report, while mixed, showed a staggering 22% increase in Crude exports over last week and almost 50% over last year.  All while adding 1.2mbls to our own inventory.  Many point to China as the main destination with their manufacturing activity exploding last month to levels not seen in over a decade.  Largely due to a catch up period from the removal of the zero tolerance COVID restrictions, the country is in need of any and all barrels. 

In the US, while our manufacturing activity slowed in FEB, it was less than expected and at its highest rate since OCT22, signaling rate hikes are working and brighter days to come.  This pushed markets higher even as Distillate inventories gained 200k bbls last week and demand was down over 14% from last year which is somewhat concerning.    

In what has been a fairly uneventful winter season, the Northeast is now in the midst of a cold snap with another round of snow expected in the coming days.  Winter diesel is still the safe approach as it is still available for the next week or so, be sure to contact your Rep for area specifics. 

3.2.23 ULSD

 

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Prices Continue to Soften as Shortage Fears Subside

Diesel futures continue to oscillate on both technical and fundamental influences.  We had mentioned to many, don't be surprised if the March contract touches the support level of $2.65 area when in it was trading above $3.25 in late January.  Low and behold on Monday it bounced off $2.6649 before jumping another $.20 over the next two sessions. 

It appears that warmer temps both here and in Europe (except for this past weekend) started the sell off as the fear of a product shortage for power generation is subsiding.  With OPEC+ agreeing to stick to current production levels, it casts doubt on what demand will really look like as China begins to reopen.  Presently it appears that their need wont be as much as anticipated. 

Domestically, we appear to be making strides on inventory increases with builds across the board yesterday.  Specifically with diesel, we rose 2.9mbls on the backs of strong imports, even with a 2% increase in demand. (partly attributed to power plant usage, as expected). I have said that should we touch the support level of $2.65, we would likely have to reset for a time and figure out where and what will drive the market.  Coming out of winter, we will need to keep a close eye on factors such as China’s demand, future interest rate adjustments, and domestic needs specifically on the transportation and construction side.  

There is still a tremendous amount of volatility within the day as double digit ranges from high to low are now the norm.  I would like to think we will see softer pricing over the next few weeks as the market tries to erase the backwardation that continues to linger.  (keep in mind the outer months are likely to not fall as much)

 

 

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Diesel Futures Rise, but Overall Trend Suggests Cooling

Diesel Futures have risen just over $.25 in the last week, for largely the same reason as they tanked the week before.  China is now lifting most Covid restrictions, as traders now see demand picking up on the world basket.  Even though we are still seeing huge weekly swings, the overall temperature of Distillates looks to be cooling off since trading some $.75 higher than presently mid summer (see below). 

Domestically, this week saw distillate demand still strong, which surprised some.  Still might be some residual power plant use feeding those demand numbers. With Crude showing a huge increase in stocks this week, gaining 19 mmbls, one would have guessed it would have set the whole market downward.  We mentioned that cold snaps, storms, and a pipeline reopening might need a week or two to shake out the inventories and traders took that to heart.  Signs of moderating inflation figures have some thinking the doom and gloom of a full blown, long term recession, might be over done and we are in for a “soft landing” or a purposeful slowing down of the economy. 

Futures are currently on the upswing of the curve, but again, the pattern suggests a sharp pull back.  The backwardation in diesel futures is still hanging around, actually widening in the last several sessions, making some suppliers keep a watchful eye on inventories.  As we work into the heart of the winter, don’t be surprised if outages of distillates pop up.  Again, a strong relationship with your supplier will keep your business running. 

jan 23 ulsd

 

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Volatility Continues in ULSD Market

Extreme volatility continues grip the futures markets as the USLD pit erased almost $.30 in the last two days.  Even though its up about $.05 currently, expect this sell off to continue for the short term. 

Much of the market has hinged on the anticipated rebound in global demand, largely centered around China.  After being basically cut off from the rest of the world for the last two years, signs were pointing to Covid restrictions and cases easing.  Those hopes took a gut punch Tuesday as reports surfaced that a surge in Covid cases has caused the country to basically halt their rollback of restrictions. 

Fundamentally, the market appears to be better supplied, which is also putting downward pressure on futures.   Physical markets are still seeing wide ranges in price action from one day to the next and some local outages are still popping up. The good news is that last weeks cold snap that pushed freezing temps into the heart of production country left little to no damage to refiners - lessons learned from the hard freeze a few years back. 

Demand spiked briefly last week as many power plants were forced to burn oil for a few days.  It will be interesting to see what inventories look like (which are due today, delayed a day for the holiday).  Keystone is operational, but will not be 100% for another few weeks so there will likely be some shaking out period with the numbers. 

Overall, it looks like we are starting another pull back which hopefully puts front month ULSD futures in the $2.70 range.

1.5.23 ULSD

 

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Fundamentals Continue to Push Futures Around

If you were to read the news, it is almost impossible to tell which way the Oil markets are going as the volatility has all pits in wild daily swings.  Fortunately for most of us, diesel prices have corrected over $.30 in the last three days and all but erased the early August climb. 

Demand, Economy, and Inventory are the fundamentals that continue to push futures around.  Reports from the IEA on worldwide demand “coming to a halt” in the fourth quarter due to slowing global economies and continued lockdowns in China rippled through the market yesterday along with interesting Inventory news.  Demand right now sits at its lowest point since JAN21.   

Shown below, gas stocks fell to a 10 month low, but was taken lightly as it is typical this time of year as we switch seasonal grades.  The bearish news came with Distillates building for a third week in a row, albeit still 12% off from a year ago.  Unfortunately for us in the Northeast, our stocks fell by 3%.   Exports of distillates finally fell last week but again they are a staggering 83% higher than last year. With the FED poised to make another 75 basis point rate hike, most anticipate the collateral damage to be demand.  Thus fueling sell off. 

This summers price action is truly one for the record books.  Since May, ULSD has gone up $1, down $1, Up $1 and down $1.  Remember the days that if the market moved $.01 you had  a meeting to figure out what to do?   

Having a good relationship with your supplier is critical during these times.  While it is impossible to predict what the pits will do, its always best to at least know what is happening.

 

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Volatility Continues with Economic Concerns, Export Increases

In the last 6 sessions we have seen ULSD futures slide just over $.50 in value.  While this is good news, the previous 6 sessions added just about the same amount. So basically we are back to the same levels we were mid-August where we all felt pretty positive pricing was moving in the right direction. Much of the rise can be attributed to money being put into the market as an inflation hedge as rates continue to rise, though it is tough to keep that money in long term with the ever present backwardation. 

The slide the last week has come as demand concerns continue to make headlines and more currently China is again locking down several major cities with COVID concerns.  Yesterdays inventory report seemed Bullish on the surface with draws on all products but like anything, the devil is in the details.  Many saw the latest news cycle highlighting the possibility of fuel shortages coming this winter.  A good explanation shows in this weeks report.  Refiners are operating at pre-Pandemic levels, yet domestic inventories of finished products are still down- the key factor is that our exports of gas and distillates are up over 500m b/d over last year. 

Again, it is still better for companies to ship products overseas to get 5x the value than if it were to sell into the US markets.  Forcing US producers to sell into US markets versus formerly heavily Russian supplied countries may appear as abandonment in their time of need politically speaking, and moreover, will that force those countries to “amend” Russian import sanctions……thus it’s a delicate balance.  

The field seems to be mixed on the last few months of the year in where pricing will be headed although the common theme is that the volatility, up or down, is here for a while.

Sept 1 ULSD

 

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