This morning, fuel prices climbed to two-month highs, reversing December’s Omicron sell-off. Diesel fuel prices are back above $2.40 per gallon at a wholesale level, while gasoline briefly surpassed $2.30. Central Asian instability and declining fears of Omicron are pushing prices higher this week, while the EIA’s inventory report provides headwinds.
Political instability in Kazakhstan, an oil producer known for decades of stability, is causing unease this morning, threatening the country’s 2 million barrel per day production. Protests began after fuel price caps were lifted on New Year’s, resulting in a doubling of fuel prices. Many government officials resigned, adding to the chaos. So far, the country’s production has not been affected, though strikes at production facilities could cause challenges in the future.
OPEC+ this week agreed to increase their output by 400 kbpd once again, continuing the steady approach implemented last August. Seven months later, those individual increases amount to 2.8 million barrels per day, though countries have struggled to keep pace with those increases given logistics constraints. Despite requests from oil-consuming nations to speed up production, OPEC+ has been taking a slower, politically easier route.
The EIA released their weekly inventory report, which showed a massive 10 million barrel gasoline build last week. Markets had already seen some of this from the API’s report last night, but the EIA’s excessive numbers gave trades pause this morning. Still, falling crude inventories seem to be winning the day so far. Seasonally, large fuel builds are typical in December as refineries draw down their crude inventories heading into year-end. These fuel builds also provide a buffer for rising fuel demand when the spring comes.
