After months of paying premium fuel prices, fuel markets plummeted yesterday to some of the lowest prices of the year. Crude oil is hovering just above $75/bbl, among the lowest prices since January. NYMEX diesel prices closed below $3/gal yesterday for the first time since Russia invaded Ukraine in February. As we noted last week, the low flagship price does not necessarily mean consumers are seeing $3/gal on their fuel invoices, but the direction is promising.
Yesterday’s oil market rout was echoed across financial markets, with traders reacting to a rising US Dollar. With Europe’s embargo on Russia going into effect yesterday, the flight to USD safety seems to outweigh physical fuel concerns. There’s also a tendency to “buy the rumor, sell the news” that causes fuel prices to rise before a major event, then calm down once the event (in this case, EU embargoes) takes place. Diesel fell more than the rest of the market, which OPIS attributed to warmer weather in the north this winter.
With fuel prices trading much lower than before, interest in fixed fuel pricing is growing. With the US expecting to refill the Strategic Petroleum Reserve when prices drop below $70, analysts expect prices to remain elevated in 2023. As companies evaluate their 2023 budgets, there’s plenty of upside for prices – escalation in the Russia-Ukraine conflict, ongoing labor strikes at refineries, unforeseen pipeline or refinery outages, etc. Conversely, the downside seems limited – a recession next year is expected to be less severe for the US, so demand could keep prices higher.