Blog > July 2021 > Market Update: Volatility to Continue?

Market Update: Volatility to Continue?

July 7, 2021

It seems like all the problems surrounding the Covid-19 pandemic are all but a distant memory. The 4th of July  holiday has come and gone and I’m sure many of you, like myself, spent time with family and friends having cookouts and enjoying fireworks together. But the energy markets tell a different story in regard to the Covid-19 pandemic. As our lives get back to normal, supply and demand is the storyline driving the energy markets. This has caused price volatility in the markets and much uncertainty in the direction the price is going to go. This isn’t just a problem for the US, but rather a problem that the whole world is trying to figure out. How do we make sense of this volatility and how will this affect my purchasing decisions when looking to buy fuel? I would like to answer these questions below and talk about what to expect moving forward.
 
Its amazing how much the market landscape has changed since this winter. Since February, crude oil is up approximately $20 per barrel, heating oil is up .50 cents per gallon, and RBOB Gasoline is up .65 cents per gallon on the futures markets. The reason for this drastic turnaround in energy prices is because demand is far exceeding and outpacing supply. US crude stocks fell for the 6th consecutive week to the lowest point since March of 2020. Because of this the US is 41 million barrels behind normal on the output of crude oil for the year compared to previous years. Another thing affecting US crude oil output is that the number of oil rigs in operation are well below that of previous years. According to the Baker Hughes report, as of last week there are 51% fewer rigs drilling for oil and gas than there were for the same week in 2019, 55% fewer than 2018, and 50% fewer than 2017. The other major thing in the news and contributing to the volatility is what OPEC+ is going to do with their oil production. They had a meeting early this week and couldn’t come to an agreement about whether they should increase production or not. This in turn will continue to cause volatility and uncertainty in the markets until a clear direction is determined from both OPEC+ and the US about how much to increase production to meet demand.
 
After looking at the data I think the trend remains in an upward direction in the short term. The 100-day moving average shows that the trend has been up since this spring. A lot hinges on what OPEC+ decides to do with their crude oil production. If they keep production cuts in place expect prices to continue to climb, but if they increase production, we should see some resistance in the markets and level out the volatility. The EIA released their short-term energy outlook today and they are expecting OPEC+ to ramp up production to help balance out the supply and demand issues, but in their report they alluded to heightened levels of uncertainty related to the ongoing recovery from the Covid-19 pandemic.
 
Central Valley Ag offers fuel contracting options all year long. Whether you are looking to cover some future risk or are wanting to know what the daily cash prices are, please give myself or one of the other energy specialists a call to discuss what works best for your operation.

You can find our contact information on the CVA website by clicking here. 
by Justin Fleming
Posted: 7/7/2021 9:08:36 PM by Mallory Shoemaker | with 0 comments
Filed under: agriculture, contracts, energy, fuel, markets


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