When Supply Is Tight, Even Weather Is Critical

Warmer weather forecasts for the next few week brought a pullback in oil markets, with diesel prices leading the way. With so little slack in the supply chain, even the weather must be watched closely to ensure every drop of fuel gets to the people who need it most. Cold weather increases heating oil demand in the northern US. In other countries, warmer weather may reduce natural gas demand, lowering prices and reducing the need to burn crude oil to replace nat gas.

Although the news for the next few weeks appears warmer, long-term forecasts are less rosy. Last week, US government forecasters announced developing conditions for La Niña, a climate condition in the Pacific Ocean correlated with winter weather patterns. La Niña years typically bring warm and dry weather in the southern US, while northern states experience a colder-than-average winter.

The forecasts suggests that heating oil demand could be strong later this year, which means more distillate demand and higher diesel prices. For diesel fleets, a chilly winter in the north also brings the possible for diesel fuel gelling in colder months if fleets are not prepared for the cold. NOAA is set to release its winter outlook later this week, so stay tuned for more information on winter expectations.

Market Condition Report - Disclaimer
The information contained herein is derived from sources believed to be reliable; however, this information is not guaranteed as to its accuracy or completeness. Furthermore, no responsibility is assumed for use of this material and no express or implied warranties or guarantees are made. This material and any view or comment expressed herein are provided for informational purposes only and should not be construed in any way as an inducement or recommendation to buy or sell products, commodity futures or options contracts.

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