Energy price stability was the main theme for much of May, before a manifold of downside risks materialized toward the end of the month that impacted both crude oil and diesel prices. In this edition of the Breakthrough Advisor, the Applied Knowledge Team provides a detailed analysis of what contributed to this behavior, while offering an updated outlook and forecast based on recent developments in the world oil market, global economy, and intensifying geopolitical landscape.
The Advisor Team uses data-driven insights to best represent the value of market knowledge to shippers, providing a forward-looking perspective on what will drive fuel prices as the second half of 2019 approaches. Remaining cognizant of the drivers of fuel price volatility remains crucial to understanding total transportation fuel spend.
The Oil Market’s Balancing Act
In last month’s Advisor publication, commentary was heavily focused on numerous geopolitical risks that left the fuel market subject to an upward price transition. While said geopolitical events – such as lingering effects of the Iran sanction decision, unrest in the Persian Gulf, and an ongoing political strife in Venezuela – still weigh on energy prices, competing forces emerged in May that have since muted this upside risk.
US trade developments with China and Mexico, regional refining dynamics, and inventory builds were examples of these competing forces, marking another inflection point for the energy market that will likely result in significant price volatility for the foreseeable future. What were the specific price implications of the current balancing act that exists in the world energy market, and what did it mean for fuel prices for shippers moving goods to market? Gain further insight in the June edition of the Breakthrough Advisor.
US Refining and Inventories
The normal conclusion of refinery maintenance season was met with a series of unplanned refinery outages in the west coast that drove regional diesel prices upward. This, paired with unexpected weather events and prolonged maintenance periods ahead of summer driving season and the impending IMO 2020 sulfur regulations, prevented certain US refiners from operating at seasonal levels.
The direct relationship between refinery utilization rates and inventory stockpiles came full circle in May, as US oil stockpiles reached multi-year highs on the back of refiners’ lower run rates. US oil output hovering near record levels, pipeline bottlenecks in some of the nation’s most robust production regions, and weaker demand projections also added to the inventory builds, raising concerns of an over-supplied oil market – at least in the near-term.
The market’s lingering upward price risks will look to offset these concerns, with the Organization of Petroleum Exporting Countries upcoming meeting likely offering additional guidance for the global oil supply picture for the rest of the year. All things considered, the Applied Knowledge Team will offer a transparent perspective on what these variables mean for diesel prices, and ultimately what will influence roughly 25 percent of total transportation costs.
This edition of the Breakthrough Advisor publication presents a detailed synopsis of the energy market’s most pressing news and data-driven insights concerning shippers’ fuel management strategies. If interested, you can gain further details on rapidly changing market dynamics and industry trends by signing up for the Breakthrough Advisor Brief or contacting the Applied Knowledge Team directly.