Key Meetings Set to Shape Oil Prices Amid Record Diesel Exports and Potential Two-Year Lows in Gasoline Costs

Both crude oil and diesel futures experienced a slight rise in Monday’s trading session, whereas gasoline prices saw a minor dip. This morning, prompt crude futures are $1.69/bbl lower. The price of crude has fallen by approximately $1/bbl from its overnight peak, primarily due to ongoing concerns about an oversupply in the market.

Key events on this week’s agenda include the release of the November Consumer Price Index (CPI) report later today, which will be closely followed by the Federal Reserve’s final interest rate decision of the year, scheduled for tomorrow. The COP28 climate summit is also currently in the spotlight, with participants eagerly anticipating a revised draft agreement. This comes after several countries expressed dissatisfaction with the previous draft, criticizing its failure to include a definitive plan for the gradual elimination of fossil fuels. Focus is also shifting to the most recent U.S. inventory data, which is anticipated to reveal a decrease in crude oil stocks by 1.5 million barrels. The anticipated drop in crude oil stocks will reflect the usual trends seen in December around the holiday season when inventory declines are common for tax reasons.

The January RBOB contract on the NYMEX experienced a decline, closing down by 67 cents at $2.0431/gal yesterday. This was paralleled by a more significant drop in U.S. spot prices. Regionally, the market witnessed sizable reductions: California saw a 16 to 16.5 cents per gallon decrease, the Gulf Coast dropped by 4 cents, and prices in the Midwest softened by 5 to 7 cents per gallon. This recent dip in wholesale gasoline prices could potentially drive U.S. retail prices to their lowest in two years. The previous low of $3.0961/gal, recorded on December 23, 2022, seems within striking distance, and prices might even trend towards the spring 2021 lows of around $3/gal if they continue to decline.

Diesel futures fared differently, closing with gains on Monday. This uptick occurred despite weather forecasts suggesting a limited demand for winter fuels. The NYMEX January ULSD contract saw an increase of $2.77 cents, ending the trading session at $2.6087/gal.

U.S. diesel exports to Europe have reached unprecedented levels, largely due to slowed trade to South America’s west coast caused by delays in the Panama Canal. So far this month, diesel exports from the U.S. Gulf Coast to Europe have surged to 437 kbpd, more than doubling the rate seen in November and setting a record pace. The increase in transatlantic diesel shipments is a direct consequence of increased transit restrictions in the Panama Canal. This situation has compelled refiners to intensify their operations following routine maintenance in an effort to avoid an oversupply accumulating on the Gulf Coast.