Week In Review – May 7, 2021

Oil prices rose for the week, though early momentum faded as the week went on. On Tuesday, the API reported large, across-the-board draws in fuel inventories, which sent oil prices rocketing to $66/bbl before they came back to earth. The week opened with markets ignoring three bearish trends – rising COVID cases in India, progress on US-Iran relations, and OPEC supply increases. Throughout the week, sentiment has bounced back and forth between vaccine optimism and bearish news.

As prices have risen, fuel prices have been leading the way. The 3:2:1 crack spread, which is the margin a refiner makes by converting crude into gasoline and diesel, climbed above $22/bbl, the highest level since mid-2019. During the pandemic, crack spreads fell to around $10/bbl – below the profit margins required to operate a refinery successfully. Since the beginning of the year, spreads have moved higher quickly, and they’re now just shy of the rough upper-bound of $24/bbl. When crack spreads rise too high, refiners begin increasing their throughput and delaying maintenance, filling fuel inventories and causing spreads to move lower again. It’s a constant balancing act. For fuel buyers, high crack spreads suggest that fuel prices could be near a peak – even if crude prices rise a bit higher, fuel prices may not have much room to rise.

Throughout commodity markets, prices are heating up. The effect has not been confined to energy – from grains to iron to lumber, commodity rates are rising. Earlier this week, we touched on the supercycle underway. Higher prices seems to be the trend for energy, so don’t expect a big reprieve from high prices any time soon.

This Week in Energy Prices

Today crude opened at a price of $64.90, a change of $1.26 from Monday’s opening price of $63.64. Crude remained mostly flat throughout the entire week, with the only exception being Wednesday’s opening price of $66.45. Wednesday’s high opening price was the highest in a one-month period.

Today diesel opening at $1.9926, a change of $0.0743 from Monday’s opening price of $1.9183. Wednesday’s opening price of $2.0144 represented the highest opening of the week, however prices remained mostly unchanged. Wednesday’s opening price is the highest in a two-month period for diesel.

Today gasoline opened at a price of $2.1142, a change of $0.0379 from Monday’s opening price of $2.0763. Throughout the week gasoline prices were stagnant, resulting in little change day-to-day.