For Risk Averse Fuel Consumers, Now May Be A Good Time To Forward Purchase Your Diesel And Gasoline Supplies.

Author: Craig Petter, Account Manager, U.S. Energy Services

Diesel fuel retail price falls below $2.00 per gallon for first time since 2005

weekly-retail-diesel-prices

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Source: U.S. Energy Information Administration

In mid-February the weekly diesel price survey showed an average retail price for on-highway diesel fuel at $1.98 per gallon. This is the first time the price for diesel has fallen below $2.00 per gallon since February 2005. These lower prices are a reflection of lower per-barrel crude prices and significant storage inventories.

 

Fundamentals Driving Low Prices

Increases in production               

na-oil-production

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Source: U.S. Energy Information Administration

 

Increases in national storage inventories

distillate-fuel

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  • EIA data showed a 9.4 million barrel increase in domestic stockpiles.
    • Inventory levels have risen by over 50 million barrels since the start of the year and sit at the highest level since 1930.
  • Global crude market remains bearish amid oversupply and tepid demand.
  • Crude market traded at significant bottom in February, but fundamental reasons surrounding the price collapse are still very much in place.
  • With a shrinking wholesale market, consumers are benefiting from lower supplier markup.

 

Bullish signals

Exploratory rig counts dropping

oil-gas-rig-count-spill

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Source: U.S. Energy Information Administration

 

Petroleum exports continue to rise

us-petro-exports

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Source: U.S. Energy Information Administration

  • Rigs searching for new production sources are at historic lows.
  • The cost to produce supplies is greater than the current market for many suppliers.
  • Suppliers are capping off already drilled wells in anticipation of higher per barrel pricing in the future.
  • Smaller suppliers being pushed out due to bankruptcy or acquisition.

 

Consumer Options

With the significant decline in diesel and gasoline pricing over the past few years, many end users are taking advantage of these low prices and developing a Price Risk Management Program (aka Hedging). This is a program where the consumer can forward purchase fuel supplies at a known price.  Locking in all or a percentage of your future fuel costs (hedging) is a powerful tool to mitigate the volatility of an unpredictable market.

Some of the benefits of a disciplined Price Risk Management Plan are:

  • Allows you to “fix” your future diesel and gasoline costs today
  • Reduces market price volatility
  • Increases price certainty
  • Allows you to budget diesel and gasoline costs more accurately
  • Current market conditions are approximately $.45/gallon less than last year

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