Diesel’s baseline price for fuel fees has dropped. It is now at $3.767 a gallon. This is the 20th drop in 22 weeks. The price is the best until January 17, 2022. The DOE/EIA price on January 30 was $4.622 per gallon. It has decreased by 85.5 cents per gallon. Diesel owners can go against the trend. Spot market differences are getting smaller.
Sharp Drop in Spot Market Gap for Diesel Prices
The spot market gap has dropped sharply, according to DTN. The price gap between Chicago and the CME was -21.5 cents per gallon. ULSD at the Buckeye Pipeline complex fell to a discount of 16 cents from the CME price. The ULSDR.PHL price on SONAR has decreased by over 14 cents per gallon since June 22. Spot diesel differentials going down is demonstrated in this. The spot price of ULSD on CME was down by less than 2 cents per gallon as of Friday’s closing.
The predictions of a tight oil market balance in the second half have a six-month deadline to prove or disprove themselves. Monday’s trade action suggests a decrease in orders for big sellers.
Saudi Arabia and Russia Announce Reductions in Oil Production and Exports
Saudi Arabia will continue cutting production by 1 million BPD from July to August. In August, Alexander Novak, Russia’s Deputy Prime Minister, announced a 500,000 barrel per day reduction in oil exports. Some people on social media noted that Novak only mentioned stopping exports, not production, suggesting a potential lack of actual production reduction.
Oil Prices Continue to Decline Despite OPEC+ Cutbacks
After OPEC+ said they would cut back, oil prices kept going down, and Brent ended the day at $74.65 per barrel. Brent rose to almost $87 per barrel when OPEC+ cut back, but it dropped 33 cents when Saudi Arabia and Russia said they would cut even more. Since June 21, the price of a gallon of ULSD on CME has gone down 18.69 cents, to $2.3773. An energy expert named Philip Verleger thinks that low oil prices are due to China’s failure to increase demand because of its zero-COVID policies and the country’s bad economy, which is caused by too much building.
China’s Decreasing Oil Consumption and its Impact on the Market
Verleger wrote that Chinese oil consumption is expected to decrease in the second half of 2023 compared to the levels observed in the second half of 2022, even considering the effects of Covid-related shutdowns in 2022. He stated that the decline could reach up to 600,000 barrels per day for both this year and the following year. This decrease is occurring after a period of already reduced levels due to the COVID shutdown.
The International Energy Agency’s April report stated that China’s daily oil consumption will increase to 16.16 million barrels in 2023, compared to 15 million barrels in 2022. Oil bulls have not shown up in price yet. The picture for the rest of the year sums up their case.
Potential Supply Deficit and Rising Oil Prices in the Second Half of 2023
The IEA stated in their report that the oil market balances were already expected to tighten in the second half of 2023, potentially leading to a significant supply deficit. The latest cuts, which were announced in early April and went into effect in May, have the potential to worsen the existing strains, resulting in higher prices for both crude oil and products. Consumers who are currently experiencing inflation will face additional challenges due to the rise in prices, particularly in emerging and developing economies.
If fuel prices went down, the trucking & logistics industry might get a second chance. Smaller businesses are less affected by the rising price of gas. Because of this, there may be more competition in the trucking industry, which could lead to lower prices.