Energy Market Updates

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OPEC

Winter Whirlwinds & Diesel Dips

Another wild day yesterday, and this week, as diesel futures traded in a $.10 range the last two days.  There is something to be said that when you walk into a meeting the market is up $.01 and when you walk out it is down $.08! As the December screen falls off and we look at January, the overall movement still appears to be to the downside.  Again, highs not getting higher and lows getting lower over time.  Inventories showed increases across the board this week with distillates leading the charge with a huge 5.2 million barrel jump.  Demand figures showed drops in both gas and distillates and again diesel down almost 18% compared to last year.  (Although, you wouldn’t know it judging by the endless Fed Ex and Amazon trucks showing up at my door). 

Keeping pricing elevated has been nervousness around what will come out of todays OPEC+ meeting.  Saudi Arabia has been pushing others for more cuts to support pricing as it appears to be tired of doing it alone.  Other members are not too sure if the timing is right at this point.  As you tear your World Famous Dennis K. Burke Calendar to the last page, it’s a stark reminder that winter is here.  Proper winterization of diesel is vital to keeping your fleet running.  We pride ourselves in being specialists in this area and are always willing to lend a voice for your area and what products are available.  We have seen relatively mild temps the last few winters but that doesn’t mean we should be lackadaisical about what’s ahead.  DKB is well supplied with all products to make sure your fleet is operational all season. If you'd like to set up a call or meeting to discuss what makes sense for your company, schedule the best time for you here: Schedule a Meeting

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Buy the Rumor, Sell the Fact

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

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Thank you Cpt. Obvious, Banks Say Lower Production Means Higher Prices

Coming off the Monday Holiday, prices surged higher Tuesday as OPEC+ heavyweights Russia and Saudi Arabia confirmed they would extend voluntary production cuts through the end of the year.  Fueling the rise from the Cpt. Obvious department, big banks publish reports to expect $107 Crude if cuts maintain.  Buy the rumor, sell the fact.  Diesel had a nice sell off going, but remember, one day doesn’t reverse the trend.  Wednesdays intraday action erased almost all of the gains only to settle down slightly.  While we still sit almost $1 higher in pricing than the beginning of the Summer, you would have to think better days are to come.  Current JUNE 24 Diesel future pricing is $.45 less than front month October 23. 

For the here and now, we all know $1 a gallon increase cuts into your bottom line significantly, many large airlines have started to float it out there not to expect good earnings due to higher fuel costs.  We can assist you in leveling out those spikes based on your specific needs.  Inventory numbers due out later today, delayed from the holiday, should give short term direction of pricing.  Even if modest drops are reported, I would expect to see the downward trend continue for diesel.  Gasoline is still disjointed from Diesel as it is starting to go into it’s seasonal specification switch which tends to push pricing down.  Timing is important in the fuel world, having an open line of communication with your supplier is vital. If you want to schedule a meeting to discuss your specific needs or questions, you can do so here: Schedule a Meeting

 

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July Rally Continues into August

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 1st, 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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Holding out for a Correction Amid Conflicting Data

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

7.28.23 ULSD

 

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Markets Should-ing All Over Expectations

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 

ULSD 7.13.23

 

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"Surprise" Production Cuts Raise Inflationary Fears (Again)

Oil markets moved higher this week primarily on the “surprise” production cut announced Sunday evening.  Recall two weeks ago we cautioned   “ All eyes will be on the FED and what they announce in the next meeting, more rate hikes or not?  Also look to see if OPEC+ decides to cut production to bolster prices in the coming weeks.”    

It wasn’t the shock of a million barrel cut, more of the agreement that Russia would extend their already in place cut of 500k bbls for another six months, thus totaling the Cartels cut to 1 million.  Fear not, it has been a very long time since OPEC has actually adhered to output quotes.  Most of the time the money is too good to pass up for many Nations. 

The fear with the cut is that Inflationary risk will rise as overall cost become higher.  As US manufacturing activity fell for the fifth straight month, coupled with yesterdays Inventory report showing Refining production slowing, it might signal that Inflation will continue to rise as demand remains high.  I tend to think about it differently (hold your comments) - If the cuts raise fuel prices, and people have to spend more on gas, heat, power, etc….  wouldn’t that force them to have less to spend on discretionary items therefore pushing down demand and subsequently lowering inflation?  We will leave that to people much smarter than me.  (Again, hold your comments). 

The draws across the board with inventories yesterday didn’t help any as futures again rose and we sit about $.10 higher than we did Monday morning.  As cooler heads prevail and the mentality shifts back towards the overall healthy of the economy in the months ahead, expect sideways daily pricing moves with a wide range from high to low.

4.6.23 ULSD

 

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Surprise Inventory Increase Fuels Selling Off

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.

3.30.23 ULSD

 

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ULSD Cash Markets Correct & Backwardation Cools

A few weeks ago we hoped to see ULSD trading $.50 lower, as the cash market was tumbling at warp speed.  And would you look at that, here we are! Much of those losses have come from the last 5 sessions alone. (see chart below). 

At the same time we have seen the market backwardation almost get erased.  Suppliers should be more willing to put product in tank versus working hand to mouth.  The JAN to FEB spread is now a mere $.01, it wasn’t long ago that is was over $1.00, and the summer months are all but flat.  So, cash prices have corrected, Futures prices have collapsed (again) and the backwardation is going away!  Great News!…. Let’s not break a piñata just yet. 

Inventories reported large distillate and gasoline builds, both in the range of 6mbls with exports of finished product dropping as well.  Again, what we said needed to happen.  The JAN screen is about $.17 higher than pre Ukraine invasion, and about $.70 higher than a year ago.  The key is that it appears that demand is starting to slow, be it from rate hikes (intended to slow inflation) or higher costs all around, most point out that next year will be soft in terms of demand and spending in general. The goal now is to normalize and hopefully not get too deep into a recession that could take years to recover.

OPEC is staying the course on production levels, China COVID fears are also hitting demand on a world level. The Russian Oil cap of $60 per barrel is still playing out.  Going into effect on the 5th, the G7 measure aims to limit that what Russia can profit from their crude and subsequently curtail the money needed to sustain a Ukrainian takeover.  However, non G7 nations such as China and India are already taking additional vessels of Russian product, so the net result remains to be seen.  Point being is that there is a fair amount of fundamental variables out there that will continue to weigh heavy on the pricing of product. 

Kerosene is still very scarce across the region and cash values are still almost $3 higher than diesel thus prices will remain higher in comparison for much of the winter.   Buy the rumor, sell the fact is the old saying. I don’t see that going away anytime soon, we just may be at a new normal when it comes to pricing, thankfully much less than we have seen in the last few months.

ULSD 12.8

 

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Inflation Reduction Act Helps Keep Downward Trend Intact

The past two weeks has seen ULSD rise, and subsequently fall almost $.20 on the front month.  Much of the dip in the last few days came as market players were able to digest some of the details in the 785 page Inflation Reduction Act which appears to moving its way through.  One piece which many believe will have the most impact on futures is that the bill revives lease sales canceled or delayed by President Biden including: one in Alaska’s Cook Inlet  and three in the Gulf of Mexico.  This section also appears to require the Biden Administration to adopt Trump era directives for 2022 oil and gas leasing established.

 Yesterday was clearly driven by inventories and demand concerns with gasoline.  However, distillates were the red headed step child, shrugging off any loses and actually finishing the day higher as demand numbers stayed healthy and inventories dipped.  Crude and gasoline took all the attention with a surprise build in crude and an almost 8mbpd drop in gasoline demand.  It’s really an odd disconnect but many of us actually see it on a daily basis.  Construction, trucking, etc remains strong but on a personal level we may be starting to pull back our own driving habits. 

An OPEC+ hike of 100,000 bpd is rather insignificant as they usually over produce or under produce by that much anyway.  Markets will always have bounces in either direction but often time the trend is still intact, and it appears the downward trend is still there. 

August 4 ULSD

 

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