From the sounds of it, this is all getting to me and everyone else as well.
If we’re all locked down to varying degrees, depending on the varying rules being proclaimed by the variety of medico-politico experts, then someone explain to me: If no one is on the road then how come the prices of gasoline and diesel aren’t in lockdown mode as well?
Here’s my take on it – you can take it or, ummm, not take it:
The last time we saw pump and rack prices at these levels was late March 2019. This was the time when COVID-19 was just a grumpy old uncle making noise in a faraway attic. It was also the time of year when prices normally move up with the semi-annual refinery maintenance season in full bloom. As the year progressed, so did the uncle who began to climb down from the far away attic and started to knock on our front door. The louder the knock got, the lower demand became for gasoline and diesel, yet crude supply kept building. Pump and rack prices fell dramatically into April 2020. All consumers were happy, then not so much as the virus spread and jobs were lost and still are trying to come back.
Flash forward to the present.
With the drop in demand for crude, Inventories rose, and prices dropped as did the jaws of OPEC et al. Their only recourse was to get prices back up by reducing production. Prices rose! You betcha’ they have. The price of WTI has increased by 50% in the last 90 days while the international benchmark Brent has also increased by 66%. If your refinery input costs go up then your refined product output prices play tag and – we’re it!
So, supply has been reduced and prices have increased.
Let’s move on to demand.
That’s where it gets a little foggy as we all try to swim through the political mud – that is the rollout of the vaccine(s) that may or may not be effective and administered by various government entities that so far have been less than effective.
The trader/speculators appear to be betting that the vaccines and their rollout will work and that consumers will get back to work and on the road again thus increasing gasoline and diesel demand and prices. Demand and prices will also be spiked by the $1.9 trillion of Biden stimulus money about to be ticker taped onto the U.S. economy.
This will be aimed at – no, not Beef Wellington, or the Tesla crowd, but on the meat and potatoes SUV consumer, the ones who actually consume gasoline and diesel.
Then in addition to the above, the Canadian consumer can’t forget about the April 1st carbon tax increase; something that is just a foreign thing to newly elected U.S. President Biden, but of course not our tried, not yet tested, Prime Minister Trudeau.
– Roger McKnight – B.Sc., Senior Petroleum Analyst