Forget about the “driving season” with its high pump prices.
Forget about the “heating season” and its high diesel prices.
Introducing… the “roller coaster season.”
We’ve bought our ticket, but who knows where this ride will take us?
As we enter the doldrums of the early fall shoulder season of demand, one would think that the trio of supply, demand, and refinery runs would all be in harmony. That is until one of the three wanders off-key.
One of them must be really off-key because in some parts of the country we will see pump prices jump by 5 cents a litre to the highest on record.
The question is, why? Is this just a shot in the dark?
Hard to avoid this shot when we’re all in the same windowless room.
Is the supply/demand picture out of focus, one way or the other, to support higher prices? If this is so, why is it so?
From a supply side, inventories of crude, gasoline, and middle distillates are down 5% when compared to the 5-year average. The drop in crude oil levels in itself put upward pressure on prices, and this will continue as long as the OPEC group holds back on any production increase.
Gasoline levels are down due to decreased imports on one hand, coupled with an 8% increase in demand on the other. The refineries are eager to satisfy the increase in demand, with refinery runs now almost back to the pre-pandemic levels of 2019. This time, two years ago, refineries were running at 95% capacity, today they are at 92%.
So, game on as far as pump and rack prices are concerned.
But, in my view, the real driver of this roller coaster is still the virus and its variant cousins. Prices of refined products may be following supply and demand to a certain degree, but the determining factor seems to be how successful governments, at all levels, are at pressuring the public into accepting the effectiveness of any given vaccine.
We have now reached the stage where vaccines are being mandated in the private and public sectors (in some places in North America), which “shoulda, woulda, coulda” been done a year ago. With vaccinations now the soupe du jour, this has instilled a new confidence that we will all be back to work and on the road again soon.
This in turn has whipped the energy speculators into a frenzy seeing demand far outstripping supply, which has spiked gasoline futures prices.
But as with any roller coaster ride, the ups soon become downs.
If the Delta variant morphs into Epsilon, then the high pump prices and high hopes of an economic recovery will go back down the track, the one we’ve all just endured for the last 16 months.
So today you may not like the prices, but enjoy the ride anyways, as long as you can.
– Roger McKnight – B.Sc., Senior Petroleum Analyst