Energy Market Updates

The large Crude inventory build yesterday overshadowed the decline in finished products and took the floor out of pricing yesterday.  Crude increased over 12 million barrels, largely due to the limited refinery activity in the past weeks.  Refineries are running at about 80% capacity due to maintenance, cold, and limited demand forecasts.  Fundamentals have pushed aside the risk premium in the last few days.  The Global conflict premium had shot diesel pricing up almost $.40 since the first of the year.  With distillate demand down about 10% compared to the same time last year, it makes refiners walk a tightrope on producing even with margins very high on distillates, in the $41 per barrel range currently.

As the March screen takes over, we are now at levels not seen since early NOV23. Hitting fresh highs the last few weeks has reversed the downward pattern we have been in...

With the Holidays behind us, we would expect that we see more rational trading on the futures markets.  As mentioned, the last two weeks saw big swings due to low volume.  Still, futures appear to be stuck in this tug of war between what appears to be an overall sentiment of Bearish global demand versus the Risk Premium of Mid East aggression.   Strong increases three times in the last week are largely attributed to Houthis attacks on shipping lanes in the Red Sea.  Tuesdays increases came with reports of 21 drone and missile attacks, however it is to note that none of the launches reached a target, as all were neutralized well before any harm was done.  Still, the possibility exists.  Closer to home, inventories of finished product keep rising.  Gasoline rose over 19mbls in the last 2 weeks even with demand up 10% over last year.  Diesel is somewhat of a different story as inventories have increase for seven straight weeks, and sits about 12% more than last year, demand however, is down just over 10% from last year.  Trucking tonnage amounts to about ¾ of all US freight, and is “not expected to improve in the near future”. This has a significant impact on diesel demand and is often a barometer of the economy as a whole.  This may be a underlying reason for more downward pressure on the ULSD futures. 

In a follow up from last week, I was asked by a bunch of people on an item I forgot to mention in winterization.  Kerosene.  Kero is a key component in winterizing diesel fuel as its cloud point is about -6F, significantly lower than standard diesel.  We use kero and diesel blends as a form of winterization throughout the region.  In recent years, the cost of kero has risen dramatically for a variety of factors such as lack of supply, over bought by airlines and it being a seasonal niche product in a backwards futures market.  DKB has supply and the ability to continue to provide these blends, no need to worry. 

The long term fuel price trend continues to head lower with diesel pricing being almost $.20 lower than a week ago.  There is something in the orange that tells me we are not done. 

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). 

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.