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.

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

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!

Schedule a meeting 

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.

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.

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 10^th 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.

A surprise increase in Distillate inventories fueled a sell off across all pits yesterday.   Distillates grew by 300k barrels while most expected a decline of about 1.5m.  This, coupled with surprisingly low demand numbers (down almost 7%) saw the pit erase the roughly $.15 in gains added in the last two weeks.  It appears that we are continuing that slow progression downwards with mindless swings in between. 

Today will be interesting as it is technically the last trading day for the APRIL ULSD contract and it is still priced above the $2.65 level with the MAY contract well under at $2.58.  Where will they meet? 

Also pushing prices down is a more optimistic view of the banking system taking hold as several major US banks are buying up deposits and loans of the now failed SVP bank.  We had said several weeks ago that if, and when, the market reaches this level it would have to “reassess” where it will move towards. 

Looking in the rearview mirror, it appears that there is still value to Q3 and Q4 fixed price gallons.  Several key fundamental factors will weigh in on direction over the next few weeks such as FED Interest rate policy and overall economic temperature, demand for products and the summer driving season.  Globally, it will be China’s demand for products, of course Russian price cap effectiveness and product movement, and as always OPEC output quotas.  The day to day price swings do not look to be going away any time soon, moreover the intraday swings are just as dramatic.

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.

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.