FUELSNews 360° – Executive Summary
The New Year marked a reversal for oil markets, which had stumbled toward the end of 2018. In fact, by March the vast majority of Q4’s losses had been erased.
Oil Market Summary
With 30% growth in just 90 days, crude experienced some of the quickest Q1 percentage gains in trading history. Supply-side shortages contributed significantly to the run-up in prices. OPEC returned to their strategy of balancing oil markets, and unplanned outages in areas such as Libya caused a sharp drop in product availability.
Major geopolitical factors at play included American foreign policy in Venezuela and Iran. Together, these two countries would dominate headlines throughout Q1. Substantial speculation around regime conflicts, economic distress, and ultimately oil output stoked concerns of tighter supply.
Supply constraints were not alone in pushing prices up, though. Strong global demand kept steady pressure on oil inventories throughout Q1. A key contributor to Q4’s decline was concern over economic demand in 2019; but, despite warnings that the global economy was beginning to show signs of a “synchronized slowdown,” the first quarter certainly started the year on strong footing.
In the months ahead, oil prices should remain roughly balanced with an upward bias. Saudi Arabia is within striking distance of its $80/bbl target needed to balance its government budget, so OPEC is expected to moderate its market approach this summer. With significant spare capacity, the group – joined by a huge uptick in US production – will help displace some of the output from Iran and Venezuela.
Of course, IMO 2020 is the wildcard factor. Though forward markets currently have not priced in a large price premium, agencies such as the EIA warn that diesel prices may see effects of 20 cpg or higher. You can read the latest on IMO 2020 on page 19.
Regional Fuel Overview
Weather played a significant role in some markets in Q1. Midwest states saw record-low temperatures that adversely affected refinery throughputs and diesel fuel operability. Strong demand for kerosene led to some regional outages, as Dan Luther discusses on page 22. Houston fog and Southeast flooding taxed markets not directly connected to the Colonial Pipeline, leading to higher prices in Florida and Tennessee.
With Canada hopping on the production cut bandwagon, Canadian crude prices rose sharply in Q1 as well, partially offsetting the discounts that Chicago fuel consumers typically enjoy. Nate Kovacevich explains the adverse effects these cuts may have on long-term oil prospects on page 25.
Whichever direction markets move, fleets cannot respond to fuel price changes until they have adequate controls over each fueling transaction and actionable insight into aggregate activity. Tracking every fuel purchase can be a chore without the right tools. On page 31, Brian Hutchinson details a key fleet fueling tool every fleet operator should consider.
Often, paying less for a product up front can create long-term costs for your company. Guest author Amy Macaulay, from the leading fuel and lubes distributor O’Rourke Petroleum, explains on page 30 how choosing the right lubes for your fleet can save dividends in fuel and maintenance costs.