Oil prices rise 2% on low diesel stocks ahead of winter
Comment of the Day

October 14 2022

Commentary by Eoin Treacy

Oil prices rise 2% on low diesel stocks ahead of winter

This article from Reuters may be of interest to subscribers. Here is a section:

The U.S. Energy Secretary in August urged domestic oil refiners to refrain from further increasing exports of fuels like gasoline and diesel, adding the Biden administration may need to consider taking action if the plants do not build inventories.

​The EIA warned this week that most U.S. households will pay more to heat their homes this winter. President Joe Biden said on Thursday that U.S. gasoline prices remain too high and he will speak next week about lowering the cost. 

Eoin Treacy's view

I’ve seen a lot of commentary predicting an oil price spike is imminent, that the winter is going to result in a chronic shortage of every form of distillate and there is nothing being done to solve the issue. Meanwhile, the number of drilling rigs in service continues to trend higher and the economic activity is likely to moderate everywhere in response to higher rates. Energy is mostly about supply but at economic turning points it is about demand.

That’s especially true since the advent of the IMO 2020 shipping regulations which resulted in ships burning more diesel and competing with traditional consumers in the middle distillates segment of the market. More shipping means more demand and vice versa. The Baltic Dry Index has collapsed back into its range so it unlikely to be a significant demand driver in the near term.

Brent crude continues to hold a sequence of lower rally highs. A sustained move back above $100 will be required to check the slide.

US Natural gas is hovering in the region of the 200-day MA and was weaker today. European prices were flattered by the price insensitive inventory build heading into winter which is now over. There will be less panic this winter than many assume.

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