A late-breaking price rally on Friday brought crude oil prices back above the $40/bbl threshold, where they remain this morning despite a downward turn. Rising optimism across all financial markets helped deliver a strong close in equities and commodities last week. In addition, NY fuel prices (the trading point for NYMEX diesel and RBOB futures) were supported by Tropical Storm Fay hitting land, briefly disrupting oil imports.
This morning, all eyes are on OPEC+ as the alliance chooses how to move forward with its production arrangements. The group will meet Wednesday to discuss the future of their historic 9.7 MMbpd cuts, which were extended through the end of July. The group has successfully doubled oil prices since the announcement last April. Markets are expecting the group to continue with the current deal, which will see cuts ease to just 7.7 MMbpd on August 1. Steeper cuts could help lift the market further, while lessened cuts (or threat of cheating) could bring prices back below $40.
In biofuels, ethanol markets have come under severe pressure. Droughts in several midwestern states contributed to industry woes, though irrigation and other agriculture methods have kept yields high. Even without a drought, though, 30+ ethanol plants are offline in the Midwest due to COVID-related demand issues. The “crap ton” (industry terminology from the Mansfield Supply Team) of gasoline stocks have suppressed gas prices so much that ethanol is uncompetitive, so blenders have less incentive to blend high amounts of ethanol to reach a full E10, let alone E15 and beyond. While tax incentives in some areas can help make biofuels more competitive, the collapse in fuel prices will remain a challenge for ethanol suppliers in the near-term.
Oil prices are cooling off this morning after Friday’s 90-cent rally. A few months ago, such a small rally would have been the calm before the storm, but last week saw several days of crude moving by just a few pennies. Crude oil is currently trading at $40.31, down 24 cents from Friday’s closing price.
Both diesel and gasoline, which on Friday gained 1.7 cents and 3.3 cents respectively, are moving lower today. Diesel is trading at $1.2302, down 1.1 cents from Friday’s close. Gasoline is trading at $1.2720, also down 1.1 cents.