As philosopher and major league ball catcher Yogi Berra once quipped, “It ain’t over till it’s over.” The painful game being played in today’s energy markets is far from over also, as no one seems to know, or even wants to know, the rules.
I find it difficult to fathom how the price of crude can fall from $140/bbl to $97/bbl over a five-day period. The consumer is getting awfully twitchy when pump prices swing 19 cents per litre in one week.
As you know, prices spiked immediately following the decision to ban imports of Russian crude into the U.S. Then the price bubble burst because the amount of crude was not as much as President Biden had mentioned.
Prices fell even further when the Saudis and the UAE said they could fill the supply gap caused by the Russian ban.
But then – oops!
The Russians said, hold off on that because if you do this, you are taking away from our market share.
And that’s when prices started to go back up again.
This has been reinforced by today’s IEA prediction for Russian crude supply to drop by 2.5 million bpd. Or roughly 3% of global supply. This call is based on their opinion that the current record high prices for crude and all refined products will reduce demand in line with price fatigue/resistance by the consumer.
In short, many consumers can’t even afford to drive to work!
Russian crude supply will also fall as potential buyers are treading softly for fear of violating any sanctions that have been applied by whatever country has applied them.
Let’s assume that Russia’s war on Ukraine was to be resolved today. We would only be jumping out of the frying pan and into the fire.
The supply/demand picture for all fossil fuel products is getting worse – not better.
U.S. inventories are a mess with crude levels 12% below the 5-year average. Crude oil should be increasing as refinery runs are down due to their semi-annual maintenance period, so refiners need less crude.
Distillate inventories are down even more by 16%, which has resulted in wholesale diesel prices being 13 cents per litre higher than gasoline.
This, my friends, is unheard of.
It also looks like gasoline consumers are losing their patience and have started their own driving season two months early increasing demand by 9%. The likelihood of the refining industry catching up to higher demand in time for the summer is now remote, so look for those record high prices we saw 10 days ago become the new normal.
The increases in pump and diesel rack prices ain’t over because they just ain’t over.
In fact, the game has just begun and we’re the ones who are losing.
– Roger McKnight – B.Sc., Senior Petroleum Analyst
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