FUELSNews 360° – Executive Summary

The second quarter of 2020 brought as much turmoil as the first. From negative oil prices to the deepest global depression in history, markets experienced unprecedented events in Q2 that will ripple through markets for years.

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Globally, demand fell an estimated 20 million barrels per day (MMbpd) at the worst points of Q2, causing oil prices to sink and inventories—both on land and at sea—to swell. The OPEC+ group of nations agreed to cut production by a historic 9.7 MMbpd, but the magnitude of the demand loss overwhelmed any deal and sent prices into a nosedive.

Negative prices for WTI crude in late April were a wake-up call for markets, albeit a temporary one. Only WTI crude felt the extreme pressure of filling inventories, and prices quickly returned to positive territory.

After April, markets began the long, slow path towards recovery. Oil prices reached $40/bbl in June, nearly a year ahead of the EIA’s April price forecast, but struggled to generate enough momentum to continue higher.

A litany of economic reports released amidst the pandemic helped provide direction to markets. Although early forecasts reflected demand destruction throughout 2020, the International Energy Agency shared a brighter outlook in their May report. Conversely, the International Monetary Fund in June revised its 2020 GDP growth forecast down to -4.9%. The rollercoaster of news and data caused uncertainty, but recovery efforts helped steer prices towards higher ground.

Looking ahead, oil prices are likely to remain suppressed for several months – or even years. Lockdowns caused oil inventories around the world to set record numbers, and even with OPEC+ cutting output, stocks will take a long time to drain.

Regional Markets

Several regions around the country experienced historically low fuel prices as crude prices plummeted. Refineries cut back their throughput, but not quickly enough to prevent gasoline and diesel inventories from setting their own records.

On the East Coast, fuel shippers attempted using the Colonial Pipeline as a storage unit, parking barrels on the pipeline rather than offloading them at terminals. Fees imposed by the pipeline company forced many shippers to rely on exports and maritime storage. Gabe Aucar explains on page 25.

Unlike coastal markets where suppliers can export excess product, Midwest markets are landlocked and do not enjoy as many fuel outlets. Several Midwestern markets saw wholesale gasoline prices fall below 20 cents per gallon, while diesel prices dipped below
50 cents. Flip to page 27 for more details.

Farther west, Rocky Mountain demand sprang back quickly, causing strong gasoline prices in May and June. With little supplies coming in, refiners lowering their utilization—and in one instance converting a refinery to a renewable diesel plant—helped balance markets quickly. For more, read about PADD 4 trends on page 30.

West Coast markets faced some of the heaviest pressure. Early in 2020, refinery shutdowns caused higher prices, but coronavirus
and early lockdowns sent both gasoline and diesel prices screeching lower. While consumers would not get a reprieve from West Coast fuel taxes, they did enjoy wholesale prices below 50 cents per gallon. Brent Fergeson shares what to expect in Q3 on page 31.

Markets face a great deal of uncertainty. Crude production is offline, refiners still have not returned to full production, and many consumers remain under lockdown. As all three parts of the oil ecosystem return to normal, timing will be key. If production remains low well after demand returns, inventories will shrink, and markets may return to normal. Rapidly returning supply mixed with weak demand could bring prolonged low prices.

On top of all the uncertainty regarding oil prices, consumers are gearing up for a busy hurricane season this year. The US is expecting above-average storm activity, which could throw a wrench in the recovery plans of fleets on the East Coast and Gulf Coast. Read more about how hurricanes can impact fuel markets on page 39.

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