Fuel Flash – July 2023

OPEC met early in June and decided to keep current supply cuts in place. However, Saudi Arabia volunteered to reduce production by approximately 1M barrels per day. The market reacted with oil prices climbing back into the low $70’s with fears of tightening supply and news that Chinese oil imports have increased. The following graph shows the daily price movements over the past three months:

By mid-month oil fell all the way back to $67/barrel with bearish market reactions such as:

  • Fed’s decision to pause any rate hikes. This causes commodities such as oil to be weaker, due to their tie to the U.S. dollar.
  • Russia still providing China and other countries oil, even with the Europe/U.S. bans.
  • Nuclear deal talks potentially resuming with Iran, which would only make a strong supply stronger.

The graphs below show the movement of crude oil (converted to gallons) along with wholesale and retail fuel prices over the trailing 15 months:

Diesel prices have been falling since November of 2022. Retail prices fell slightly faster than wholesale in June which caused profit margins to decline. Gas prices have been relatively flat the past few months, with some slight ups and downs. Gas margins were down marginally compared to May. The following graph shows the retail margins over the trailing 15 months:

Crack spreads continue to remain above $1, with a modest increase in June as seen in the graph below:

According to AAA, the national average gas prices saw another small decline this month compared to last. Prices fell by about $0.04 to $3.54/gallon. Diesel prices continued their slide of the past several months as they decreased by another $0.09 to $3.86/gallon.

Somehow by the end of June, oil prices were back above $70/barrel. China’s economy hasn’t taken off as quickly as expected. The U.S. continues to try and control inflation, which has caused consumers to roll back their spending. Even with weak demand factors, there are concerns that supply will get tighter with the earlier mentioned Saudi Arabia cuts. If demand doesn’t take off or supply doesn’t contract, it will be hard to imagine oil prices going much higher in the short term.

Sokolis Group will continue to monitor the many factors going into fuel prices. As of now we anticipate that oil prices will continue to range between $65-75/barrel.