ENERGY: Brent oil prices have fallen under $100/bbl as the demand outlook darkens, and recession fears rise. More supply has come from US reserve sales, whilst yesterday’ 100,000bpd OPEC addition was tiny but still welcome. This is all helping ease inflation fears. But refining bottlenecks are preventing this being fully passed to the consumer, dampening the benefit. Price premiums for refined products like gasoline and heating oil are double average levels (see chart). These should eventually fall as less demand cuts bottlenecks. But for now refiners, from Marathon (MPC) to Valero (VLO), and integrated oil producers, are benefitting over consumers.
GASOLINE: The so-called ‘crack spread’ price difference between crude oil and refined gasoline prices has surged with the cut to Russian gasoline exports, China export controls, and a broad global refining capacity shortage as demand rebounded from the covid crisis. This is easing as demand moderates. But it remains high and there is a wild card, with forecasts for an above-average US hurricane season and half US of refining capacity near the exposed gulf coast.
HEATING OIL: This has tracked gasoline long term, but with volatility reflecting its different drivers. It is used to heat homes and demand is focused on the cold US northeast and the winter months. Crude oil prices represent only half the total price, with distribution and marketing (34% total price) and refining (16%) the rest. By contrast, gasoline is less seasonal and more national.
All data, figures & charts are valid as of 03/08/2022