FUELSNews 360° – Executive Summary
With so many rapid changes in March and April due to COVID-19 and OPEC decisions, the end of the quarter seemed an inappropriate place to cut off the story. For that reason, the FUELSNews editorial team delayed publication to allow for a more complete and accurate depiction of early 2020 trends.
COVID-19 overwhelmed nearly every other market factor to begin the year. Social distancing policies resulted in shutdowns and layoffs, causing rampant unemployment and putting intense downward pressure on fuel demand.
Initially, OPEC took the dampened demand as an opportunity to squash US shale competitors, and Russia led Saudi Arabia into a battle for market share. But as the global economy tumbled, both producers realized that drastic action was needed, leading to a historic 9.7 million barrel per day production cut.
Even with historic supply quotas in place, the world was overwhelmed with excess oil. Estimates place the demand destruction at upwards of 20-30 million barrels per day, a gap nearly impossible to narrow. So much crude oil availability, particularly in Cushing, OK, forced NYMEX oil prices into the negative on April 20, the first time in history that a major oil market index has fallen below zero. While markets quickly returned to positive territory,
the occurrence sent shockwaves throughout financial markets.
While the world focused on COVID-19’s march around the world, local markets experienced upheavals as regional supply markets experienced volatility.
In many local markets, refinery turnarounds early in the season put pressure on diesel markets, causing diesel inventories to fall below the five-year range at some points. Tight diesel supplies put pressure on prices, giving distillate prices strength even as the world began its COVID-19 panic.
The world faces an uncertain energy market future. While markets have weathered supply gluts, recessions, and geopolitical uncertainty many times in the past, on few occasions have so many diverse factors converged to dismantle market expectations.
Turbulent circumstances have forced forecasters to re-evaluate their models, further disrupting market patterns.
The COVID-19 recession is unlike other downturns: it was caused by an external force – a virus – rather than fundamental business cycles. This critical difference makes projections difficult, as public health is a problematic confounding factor to predict.
Whatever lies ahead, energy buyers must manage their fuel spend effectively regardless of market conditions. With uncertainty and complexity rising quickly, developing a clear understanding of market risk and potential scenarios is essential to navigating the complex changes in the energy supply chain successfully.