Energy Market Updates

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.

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

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