Energy Market Updates

Apparently the Strait of Hormuz is operating on Bankers hours this week. After a promising $.45 drop on Friday, the reaction to the news has now seen futures take back all of the loss and then some.

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. 

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. 

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! 

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. 

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. 

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.

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. 

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. 

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.