You call it. Heads or tails?

In today’s petroleum-related energy markets, there are two sides to the short-term pricing coin flip:

The global side, and the domestic.

To say that prices recently have been volatile would be a laughable understatement. The wholesale price of gasoline fell 10 cents per litre (cpl) in the four-day period from November 25 to November 29 – only to bounce back up again 6 cpl in the two days from November 29 to December 1.

Prices have been hopscotching as traders try to guesstimate where the price of crude is headed. Their attention is focused on Brent crude, which is the global benchmark product. The movements of Brent particularly affect rack prices east of the Mississippi in the U.S., and therefore those east of Thunder Bay in Canada.

So, what will move Brent crude in the immediate future?

There are rumours that OPEC+ may consider an increase in production when they meet for their CARTELian hug fest over the next few days.

But “not so fast,” say the Saudis. They claim their 2 million bpd cutback will hold for 2023. So, in one breath, gasoline wholesale prices went down, and when the rumour proved untrue, they went back up again.

The next move in this chess game will be next week when the EU triggers their ban on Russian crude imports. This should increase crude prices and, of course, wholesale and rack prices for gasoline and diesel. To counter this, the G7 will set the cap on Russian crude prices. The way it looks now, this cap will be too high to have any negative effect on export volumes.

This will force prices down again.

Prices will also be on the downdraft with demand falling due to the COVID-19 lockdowns in China, the world’s largest crude and refined product importer. Put this all together and it’s just another coin toss on the crude price side of the coin.

Switching to the North American picture, the supply side is tight for crude, but that is mainly because refinery runs are maxing out at 95% capacity. The distillate levels have improved slightly, but not enough to buttress a sudden or prolonged cold snap that we all know is coming. While there has been a temporary drop in distillate demand, the opposite is true for gasoline and jet fuel demand. So, it’s awash.

With winter less than two weeks away, diesel and heating oil prices may take consumers to the cleaners.

– Roger McKnight – B.Sc., Senior Petroleum Analyst

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