Energy Market Updates
At first glance of yesterday's inventory report you would assume that a solid up day was in the making. As has been the case, the devil is in the details. While all products showed modest drops, they were largely offset with massive exports, known refinery maintenance and switching to winter grade gas. The largest market mover was the FED maintaining rates but signaling they expect possibly 2 more rate hikes in the coming months. A large sell-off took hold pushing diesel futures down almost $.10 before settling down just under $.05. The profit taking ideology is that if rates get higher, it dampens economic growth thus curbing overall fuel demand, add in that it makes it more expensive for foreign currency buyers of products.
Additionally, truck tonnage was down 2.3% in August, marking the sixth straight month of year over year declines. Many point to last year being a shipping anomaly coming out of COVID, but it is still hard not to take into account the declines. Even though we are seeing a rebound today, expect a choppy downward progression as we close in on the winter months. Speaking of winter….. It’s not too early to start thinking about winter product and the associated costs. Availability of Kero as a blending component appears to be a concern for many. Feel free to reach out to discuss how we can assist and also talk about pricing next year's needs. Schedule a Meeting
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
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.
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.
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
Fuel prices sit about $.30 higher today than the beginning of the month as we broke out of the comfortable range in MAY through JUNE. The three week rally can mainly be tied to production cuts, unpredictable inventory reports and mostly an optimistic view on the overall health of the US economy. The bright side is we are over $1.00 lower than this time last year. The question remains, does this rally have any legs?
In terms of production, it is a fine line where re-emerging producers such as Venezuela, Iran, and US shale jump in heavy to take advantage of the higher market prices. And ultimately, do those barrels have any affect on the overall supply picture and will that additional product push prices down? Personally, I think the real key lies in the demand picture. Diesel consumption is down roughly 3% year over year, may not seem like a lot but it is noticeable. Gasoline is actually up versus last year, but again, that may still be lingering COVID related adjustments.
With major National freight carriers all seeing volumes down significantly this year, and one facing bankruptcy, it seems likely that diesel demand will remain soft through the end of the year. We could, possibly retrace $.30 to $.50 in value should this maintain. (special note: SPR Crude is still about 150mbls lower than last year)
We are in this odd place as some businesses are flat out and others are maintaining. How much of that is staffing related is tough to tell. Being able to pivot once again may be crucial in the coming months. Having a supplier with product, trucks, staff, and multiple delivery options to meet all your fuel and lubricant needs should be a top priority as we move into the second half of the year. As always, feel free to reach out to discuss your specific operation. (You can reach out by phone, or schedule a call at a good time for you using this link: Schedule a Call )
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!
Fuel markets appeared to have shrugged off what could have been a historic week, should an actual Coup attempt in Russia transpired. The current market mood appears to be focused more on actual supply and demand factors. Crude inventories showed a massive 9m barrel loss this week while finished gas and diesel were relatively flat. Gasoline futures soared yesterday taking ULSD along for the ride, although not as much.
Again, we are still in this range since early May as demand figures temper any long run increases. While diesel demand is at a 6 month low and is over 7% less than last year, gasoline is up almost 4%. Some attribute the gasoline rise to more people returning to the office regularly. As we say often, diesel usage in the U.S. is the barometer of the economy and if that is soft, so goes the economy. That, along with hints of another FED rate hike are keeping future pricing in check.
The price backwardation that affected distillates for so long has found its way into the Gasoline market, far more than the normal product seasonality we typically see. Again, this limits most from bringing in gasoline to storage as the hedge costs are not justifiable and outages can occur. The right size tank, and a strong supplier relationship will always get you through. Look for the day to day swings to continue as we head into the summer driving season.