There is light news today given the Martin Luther King, Jr., holiday, but the story continues to be extraordinary crude oil, distillate and truck capacity demand due to heavy ordering from power plants.
WTI crude oil is trading at 3 year highs, up $0.51 to $64.81/bbl today. While this is impressive in itself, the WTI forward curve has been interesting to watch over the past three months. The chart above illustrates the backwardated price difference between the February 2018 and February 2019 WTI contracts. At last trade, February 2018 WTI currently costs $4.21/bbl more than February 2019 and has been more expensive since late October. This means that the market is willing to pay a higher price for crude oil now than later, depicting a market which is less supplied. The combination of the OPEC production cuts and distillate demand has caught up with the crude oil market and appears to finally have gotten rid of the glut of product we’ve had since 2014.
The extreme cold we experienced the first week of January is not only having an effect on the crude oil market, but the energy sector as a whole. The EIA natural gas storage report indicated we withdrew 333 billion cubic feet during that week, the largest weekly draw ever. Since the natural gas pipelines can only deliver so much to homes and businesses at a time, the dual-powered power plants that can operate on diesel were incentivized to do so instead of natural gas, and many still are. This has created a heavy burden on petroleum haulers and diesel providers to keep up with this demand while servicing our normal customers. We even have one hauler that is so far behind that they can’t accept any new delivery requests until Easter. Yes, Easter.
We mentioned ten days ago that this was going to be a truck capacity nightmare and it still is. We can’t confirm for sure, because it’s very dependent on future weather forecasts, but it appears these power plants will be ordering consistently for the rest of the month. Therefore, we still ask that our delivered-in customers pre-schedule loads days in advance so we can accommodate your needs as best we can. We appreciate your business during these stressful times in our industry; please don’t hesitate to call your representative here with any questions.
February ULSD currently trades higher by $0.0207 to $2.1057/gallon and February RBOB is up by $0.0092 to $1.8587/gallon. The markets stopped trading at 1pm today and will reopen overnight.