Blog > March 2021 > What is with the Energy Markets?

What is with the Energy Markets?

March 19, 2021

Looking back over the last few months one can’t help but notice how much the price of fuel has rallied in such a short period of time. During the first quarter of 2021 we have witnessed some of the coldest weather in decades, unexpected refinery shutdowns, rolling blackouts, the Keystone XL pipeline permit revoked, a push for cleaner energy and electric vehicles, Covid-19 concerns, stimulus aid, an increase in petroleum exports, and OPEC staying the course with reduced oil production just to name a few. Since early January the bulls have seemed to take the world by storm with little to no correction to be had for the energy markets. How do we make sense of the volatility as of late? Is this just the new “normal” that we need to get accustomed to? What options do I have to protect myself or my business when pricing fuel for 2021 and beyond? I would like to answer these questions below and give some perspective as to what has been going on so far this year and what one can expect the next several months.
 
If you follow the energy markets at all, you know that the energy markets can change as fast as the wind does in Kansas. As recent as last Friday markets were flat with crude oil dropping slightly to close out the day. The news headlines were still mostly positive due to that the demand will continue to test the supply the US has on hand currently. Part of what supported the markets last week was that the Department of Energy report showed a large draw on gasoline and diesel stocks, but a large build on crude stocks. Also playing into the energy markets last week was a stronger basis than normal. This was due to a few refineries down south being shut down due to the winter weather that Texas and Oklahoma had a few weeks ago. This has led to an inversion in the futures markets which made the current spot pricing of fuel to be more expensive than the futures contracts. This week though a different tone has been set. For now, it seems like the bears have taken over the energy markets. As of this writing, we have seen the energy markets post their 5th consecutive day of losses with Crude oil prices dropping approximately 5 cents, Heating oil dropping .15 cents, and RBOB Gas dropping .15 cents on the NYMEX. Another situation that is helping to drop the fuel prices is that refineries have come back online from the winter storm last month which in turn has weakened the basis in the Midwest. Additionally, refinery utilization is up in the US by 7.1% this week adding to the bearish tone that has been set. Supply and demand numbers have also played a factor in what we are seeing currently take place in the futures markets. The Department of Energy showed in their latest report that there was a build in distillate stocks by 500,000 barrels, a build in gasoline stocks by 300,000 barrels, and a build of crude oil stocks by 2.4 million barrels. It was estimated and expected that a draw was to occur on distillates and gasoline by approximately 3-3.5 million barrels which wasn’t the case. We will have to see if the markets stay the course to close out this week.
 
After looking at the data, the million-dollar question is what should I do at this point? It seems as if the bears have gained control this week ending the impressive run that the bulls had on the energy markets. For the short term, expect volatility in the energy markets due to supply and demand concerns and issues surrounding Covid-19 around the world. Longer-term, an opportunity may be approaching, and that means if you have been waiting to contract fuel you should be looking for your chance to do so as reports are still showing $70-$80 per barrel of crude this summer with gasoline and diesel to follow.
 
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, Certified Energy Specialist 
Posted: 3/19/2021 7:15:35 PM by Mallory Shoemaker | with 0 comments


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