Free Falling

By: George Butler / November 9, 2018

CrudeOil-updown

On October 3rd The oil market intraday highs were as follow:
Crude Oil – 76.92
RBOB Gasoline – 2.1464
ULSD Diesel – 2.4541

Today, November 9th the intraday lows so far are:
Crude Oil – 59.26 (-23%)
RBOB Gasoline – 1.5987 (-25.5%)
ULSD Diesel – 2.1201 (-13.6%)

In five weeks we’ve witnessed one of the greatest sell offs on record. What has changed to warrant this drastic sell off?
Leading up to October 3rd the market was focused on looming Iranian sanctions and production loss. OPEC’s production rhetoric, bullish demand, inventory drawdowns and refinery turnarounds. In the five weeks leading up to today eight countries are granted an exemption to Iranian sanctions, OPEC’s production increased in the face of pressure from Trump himself. His not so subtle tweet about the US providing national security to oil producing nations and he wouldn’t let them hold us hostage. Ramped up Saudi production and huge weekly Crude builds with under reported releases by the SPR.

What does all this mean to the driving public?
Retail gasoline prices have slowly chased the market decline. Looking at Gas Buddy, in eastern Pennsylvania (Harrisburg) 87 grade low is $2.69 and high is $2.87. In the State College to Altoona markets the 87 grade low is 2.65 and high is 2.87. Pittsburgh low is $2.73 and the high is $2.99. Averaging these prices they represent  a $0.20 cent per gallon retail price decline.

You may ask why haven’t retail prices declined as rapidly as wholesale? While it’s very easy to lower prices it’s more difficult to raise prices. (See My No One Wants To Blink First Blog)  From August 17th to October 3rd’s the price rose from $1.8370 to 2.1464 or $.3094 cents per gallon. It was very difficult to pass through the increase. This is why retailers know this and use some price discipline when determining retail postings.

There are plenty of bullish voices in the market place. Phil Flynn, a noted analyst at Price Futures Group calls Crude $84 but year end. Mr. Flynn also notes large commercial customers (Airlines) hedging out one to two years at these price levels.   

OPEC meets Sunday and there is talk of a production cut. We could come in Monday morning and see a very different board.

Cold weather is also on the way. Don’t get caught short.

 


Categories: crude oil, oil producers, energy market


George Butler

Written by

George Butler


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