The oil complex is trading much higher this morning due to a flurry of bullish headlines: increased chances of a federal stimulus package, weaker dollar, oil strikes in Norway, and the development of Tropical Storm Delta.
Unless you’re a bear hibernating, everyone knows the Coronavirus is causing panic and particularly panic in the markets. Speaking of bears, we are now possibly entering a bear market.
In an effort to reduce greenhouse gas emissions from transportation, 12 Northeastern states and Washington D.C., including Pennsylvania, are weighing a regional program that would raise the price of gasoline. The Transportation and Climate Initiative (TCI) defines their program as a “bipartisan group or Northeast and Mid-Atlantic Jurisdictions” looking to “achieve additional benefits through reduced emissions, cleaner transportation, healthier communities, and more resilient infrastructure.” According to CBS Pittsburgh, their recent plan would require wholesalers of gasoline and diesel in participating states to buy carbon credits to sell their fuel. Critics of the program are quick to point out that the costs of these credits will be passed on directly to the consumer.
As the end of this week winds down and people prepare for the holidays next week, light liquidity will most likely be the name of the game in our energy markets. Light liquidity means trading volume is lower than normal which is to be expected during this time of year. Therefore, the bid/ask spreads are wider. Meaning that if the computer-driven trading houses decide to either buy or sell a lot of volume, the market can move violently in one direction rather quickly. What does this mean for our industry? This means that our customers can be very opportunistic especially if we see a retracement in prices after this rally we’ve seen since the beginning of December.
The events over the weekend in Saudi Arabia are causing concerns throughout the nation. The oil installations attacked resulted in the removal of six percent of daily world consumption, which will have an impact on motorists and consumers in the United States as early as today. The attack on Saudi Aramco’s Abqaiq plant in Buqyaq and the Khurais oil field is the biggest disruption to Saudi Arabia’s oil industry since the early 1990’s. The pain consumers may feel center around how long it takes normal output from the world’s second-largest oil producer to return.
As the summer driving season shifts into high gear, consumers are well aware of gasoline prices and the impact the price will have on their summer travels. Although gasoline makes up 90% of the gallons we purchase for our vehicles, the product that makes up the additional 10% (Ethanol) can have a big impact on the price we pay.
Early Friday morning, a massive explosion occurred in south Philadelphia at the Philadelphia Energy Solutions Refining Complex. The 150-year-old oil refinery, opened in 1866 just after the Civil War, had a vat of butane ignite and explode causing Interstates 76 and 95 to close and even “rattled” homes in the South Jersey area.
As, arguably, the most anticipated month of the year for both cross-country driving enthusiasts and beach lounging sun bathers, the month of May, approaches, we must check our pocket books and weigh the cost analysis of driving the extra miles to visit the largest ball of twine or not.
The U.S. typically sees a drop in gasoline prices as demand begins to tail off at the end of the summer travel season. This year is breaking the trend with gasoline prices sitting at their highest for the season since 2014, due in large part to the global oil price rally. AAA reports that the national price average was at $2.867 as of Wednesday, September 26th. Gasoline prices were 27 cents higher per gallon than they were at the same time last year, and this backwards trend could continue into the fall and winter seasons.
Among the many geopolitical issues going on in the world effecting the oil market, there have been reports this week that President Trump is considering tapping into the Strategic Petroleum Reserve (SPR) in an effort to lower gasoline prices. According to Bloomberg, “options are under consideration ranging from a 5 million barrel test sale to a more sizeable release of 30 million barrels and a third option of a larger release that would be coordinated with other nations.” Utilizing any of these options would create a shift in global crude oil prices.