During July, oil prices traded in an extremely narrow range, primarily between $40 and $42 per barrel throughout the month.  The following graph shows the daily price movements over the past three months:

Although prices increased in rapidly May when COVID-19 restrictions started to ease, they lost momentum in June, then stagnated in July as concerns grew about a resurgence of the virus.  Significant uncertainty regarding an economic recovery from the virus’ impact cast doubt on the demand for oil and fuel, leaving prices in a holding pattern.

While COVID-19 has been the overriding factor impacting prices, political tensions also came back into the picture with offsetting impacts.  The relationship between the US and China deteriorated further in July raising the possibility of another trade war flare-up that could negatively impact global economic activity and demand for oil.  In addition, Iran conducted military exercises in the Strait of Hormuz targeting a mocked-up US Carrier raising concerns of an escalation that could disrupt Middle East oil supplies.

Despite the very limited movement in daily prices during July, the overall average for July increased compared to June primarily because prices increased modestly throughout June.  Average monthly wholesale prices for diesel and gas also increased.  Retail prices for diesel continued to be relatively flat while retail prices for gas showed a small gain.  The graphs below show the movement of crude oil (converted to gallons) along with wholesale and retail fuel prices over the trailing 15 months:

As the graphs above show, retail prices for diesel were relatively flat compared to the prior month as retailers continued to absorb the wholesale price increase.  The result was that margins for diesel decreased again but remained above their typical level.  For gas, margins increased slightly while remaining on the upper end of their typical range.  The following graph shows the retail margins over the trailing 15 months: 

The outlook for oil prices over the next few months remains very uncertain and will be highly dependent on the course of COVID-19.  The political factors mentioned above are less likely to have any significant impact on prices compared to the virus, but they should not be ignored as history has shown they can significantly and rapidly impact prices. 

Sokolis Group believes oil prices will continue to trade in the low- to mid-$40’s per barrel through early fall with the potential to fall back into the $30’s if restrictions must be expanded to combat the spread of the virus.  However, there have also been reports of vaccine trials reaching advanced stages with the potential for approved use before the end of the year.  If positive vaccine results are announced soon, oil and fuel prices will likely begin rising toward $50 in anticipation of more robust economic activity and demand for oil. 

Oil prices traded in a narrow range throughout June following the significant rebound that began in May.  Although prices broke through $40 per barrel very briefly, they were mainly in the high-$30’s for the entire month.  The following graph shows the daily price movements over the past three months:

When COVID-19 restrictions started easing during May, businesses reopened and travel began to increase resulting in growing demand for oil and fuel.  In addition, OPEC+ extended their production limits to help offset the global oil supply glut that had built up over the past few months.  As demand increased with limits on production, oil and fuel prices began rising steadily throughout May.

As June began, concerns grew about a resurgence of the virus with the number of cases still rising in some countries.  In the US, a significant increase in cases was seen in many states that had loosened their restrictions earlier in May.  The uncertainty surrounding continued economic growth along with future demand caused oil prices to flatten in the high $30’s throughout most of June.

The overall average monthly oil prices for June compared to May showed a significant increase.  Wholesale prices for diesel and gas followed oil closely.  However, retail prices for diesel were relatively flat as demand lagged, primarily related to commercial trucking.  Meanwhile, retail prices for gas rose with wholesale prices as demand from individual consumers continued increasing.  The graphs below show the movement of crude oil (converted to gallons) along with wholesale and retail fuel prices over the trailing 15 months:

As the graphs above show, retail prices for diesel were flat compared to the prior month as retailers absorbed wholesale price increases and sacrificed some of their margins which have been running at very high levels.  For gas, margins had already declined significantly last month, and retailers were forced to increase their prices to keep pace with wholesale so their margins could be sustained.  The following graph shows the retail margins over the trailing 15 months: 

Looking out over the next few months, Sokolis Group believes oil prices will continue to hover near $40 per barrel with some variability based on COVID-19 developments.  The potential exists for prices to continue climbing toward the mid-$40’s and beyond if restrictions in many states continue to be eased and demand increases further.  However, as we have recently seen, significant new virus cases have emerged resulting in some restrictions being reinstated.  If the situation worsens, it could cause demand to stall and prices may fall back toward the mid- to lower-$30’s. 

Following the historic collapse near the end of April, oil prices began rebounding throughout May.  May’s prices started slightly under $19/barrel and nearly doubled by the end of the month closing over $35/barrel.  The following graph shows the daily price movements over the past three months:

The historic negative price dive in April was caused by a lack of liquidity in the futures markets when traders fled their positions as rising inventory levels threatened to exceed storage capacity.  During May, those storage concerns subsided as some countries, along with many states in the US, began to loosen their COVID-19 restrictions.  As businesses reopened and travel began to increase, global demand for oil and fuel began to grow.  With increasing demand and inventory levels receding, prices began rising.

The recent production cuts by Saudi Arabia, Russia, and other OPEC+ countries were another factor contributing to rising prices in May.  US oil producers also scaled back their operations.  These cumulative production cuts combined with the increase in demand provided solid support for oil prices in May.

Although oil prices rebounded sharply when looking at the overall overage for May versus April, diesel wholesale prices were surprisingly flat while gas increased significantly.  The growth in demand for gas was much more significant than diesel as individuals began to venture out of their homes again.  The graphs below show the movement of crude oil (converted to gallons) along with wholesale and retail fuel prices over the trailing 15 months:

As the graphs above show, retail prices for diesel showed a slight decline in May while gas retail prices were flat.  Despite the underlying increases in oil and wholesale costs, retailers absorbed those increases by sacrificing extraordinarily high margins they had been generating over the past couple months. Even though margins declined, they remained at a very high level for diesel.  Gas margins declined significantly to a level modestly above their typical range.  The following graph shows the retail margins over the trailing 15 months: 

As the summer months unfold and COVID-19 restrictions continue to be eased, Sokolis Group believes oil prices will remain in the $30’s per barrel with some potential to break into the $40’s if demand continues to rebound quickly.  However, the possibility also exists that oil producers could begin to increase production as prices rise which may partially offset any increases.  In addition, if a significant resurgence of the virus emerges and restrictions are tightened, the potential still exists for oil prices to fall back into the $20’s or lower.

As part of the sharp decline that began in January, oil prices set another somber record in April when they crashed below zero for a short period during the month.  Prices started the month at $20/barrel and managed to claw their way back to $19 by the end of the month despite the historic dip in negative territory.  April’s ending price is 70% below the start of this year along with the same time last year.  The following graph shows the daily price movements over the past three months:

COVID-19 continues to be the primary force driving prices down.  Global travel restrictions and lockdowns have significantly reduced economic activity and the demand for oil.  The decrease in demand across the globe has been estimated at roughly 30 million barrels per day, almost a third of pre-virus daily consumption. 

Looking closer at the historic negative dive in April, this event was caused by a lack of liquidity in the futures markets.  Oil is traded in option contracts that expire each month.  During the third week of April, options for the month of May were approaching their expiration date.  If option holders held their contracts to the end, they would have been obligated to take delivery of the oil.  The problem was that oil storage had become very limited as inventories grew from weak demand.  Traders were faced with the dilemma of taking delivery of oil with no place to store it.  They decided to pay someone else to take the option off their hands to solve the storage problem causing the option price to go negative.

Another notable item for April was that Saudi Arabia, Russia, and other OPEC+ countries agreed to scale back their oil production in an effort toward balancing the market.  Their cuts only amounted to about 10 million barrels per day which was far short of the decline in demand.  Oil prices barely responded to their action.  Production in the US also declined as a result of market forces.  With prices so low, many domestic wells became unprofitable to continue operating.  

Due to the continued decline in April, along with the sharp negative spike, the overall average price for oil was almost half of March’s average.  Substantial declines also continued for diesel and gas.  The graphs below show the movement of crude oil (converted to gallons) along with wholesale and retail fuel prices over the trailing 15 months:

While refined fuels declined, they did not get anywhere close to sub-zero like oil and should not be expected to do so in the future.  Refiners have cut back their utilization rates to a level around 70% compared to a more typical 90% as they adjust their throughput for lower fuel demand.  Even at the diminished output, they will still sell fuel at positive prices and generate crack spread margins, with diesel providing higher returns compared to gas.  Because they are refining less fuel, they are drawing less oil which is why storage has become very limited causing the negative option trades described earlier.

The retail price decline in April continued at a slower pace than wholesale.  Retail margins, already at unprecedented levels, rose even further in April.  As noted in the past, it is common for margins to increase during periods of rapid wholesale price declines when retailers take advantage of the opportunity to maximize their margins.  However, under these circumstances, it is important to recognize that retailers are pumping far fewer gallons and need higher margins to cover their overhead.  The following graph shows the retail margins over the trailing 15 months: 

Due to the market changes in April, almost all fleets should have seen a significant drop in fuel prices compared to March.  Fleets with diesel deals tied to wholesale cost indexes would have seen a larger decline at a faster rate compared to fleets purchasing at retail.

Looking out over the next couple months, parts of the world have begun easing their COVID-19 restrictions including many states in the US.  Sokolis Group believes that oil prices will remain at their relatively low levels through the summer until demand increases significantly.  If inventory storage remains tight while demand is low, the possibility exists for oil prices to drop quickly in late May when the next set of option contracts expire.  This would then be followed by a rebound like what happened in April.  For diesel and gas prices, as economic activity begins to strengthen, demand for fuel should grow.  Prices should stabilize and then start moving upward.

The sharp decline for oil prices that began in January has accelerated through March.  Prices declined by about 60% during March, falling to roughly $20/barrel.  They are now just under a third of the level where they started this year along with where they were a year ago.  The following graph shows the daily price movements over the past three months:

For some additional perspective on this remarkable decline, the following graph shows the daily price movements over the past five years:

From the graph above, prices have reached the lowest they’ve been since the start of 2016.  They are also at one of the lowest points they’ve been since the 1998 financial crisis.  Most notable is the rate of decline which may be the fastest in oil’s modern history.

The rapid decline is primarily attributable to the growing cases of COVID-19 throughout the world which have severely curtailed economic activity and the demand for oil.  Prices have also been driven downward by the battle for market share between Saudi Arabia and Russia.  Their disagreement about reducing oil production to try and balance the market led to Saudi Arabia’s decision to increase production during this unprecedented period of demand destruction. 

Due to the accelerated decline during March, the overall average price for oil fell significantly compared to February.  Substantial declines also occurred for refined products.  The graphs below show the movement of crude oil (converted to gallons) along with wholesale and retail fuel prices over the trailing 15 months:

For refined fuels, the decline in retail prices was at a slower pace than wholesale.  As a result, retail margins rose to unprecedented levels.  The growth in retail margins is typically seen during periods of rapidly falling wholesale prices as retailers take advantage of the opportunity to increase their profits.  However, under these circumstances, higher margins may be a necessity for some smaller retailers to survive as they pump fewer gallons.  The following graph shows the retail margins over the trailing 15 months: 

For most fleets, fuel prices should drop more than 30 cents per gallon compared to where they were just a couple months ago.  Fleets with diesel deals tied to wholesale cost indexes should see a larger decline at a faster rate compared to fleets purchasing at retail.  Declines for gas will be even larger because demand has been much lighter than diesel.  In addition, the typical increase in gas demand during the summer will be less likely if the public is still reluctant to travel.

As the impact of the virus continues to grow, Sokolis Group believes that oil prices will remain at their very low levels for the foreseeable future.  The market currently has too much supply from overproducing as overall demand has collapsed.  Excess oil and fuel inventories are now challenging storage capacity and refineries are beginning to scale back production.  However, it will still take some time for inventories to adjust unless there are any sudden changes with demand growth or OPEC+ changes its course. 

With so much inventory available, Sokolis Group is not aware of any fuel supply concerns in the US.  In addition, truck stop networks have remained open for fueling with very few exceptions.  The truck stops have limited their dining options, but showers and restrooms remain available and cleaning procedures have been enhanced.

For bulk and mobile fuel suppliers, we have seen a few changes regarding pricing structures due to driver labor challenges.  However, the most notable change has been related to paperwork like delivery tickets and BOLs.  Many suppliers are transitioning to electronic records to avoid any in-person transfer of physical paperwork.  In most cases, this is going well, but some customers still need to find a workaround for requiring a company representative to sign paperwork. 

The world is grappling with an issue of enormous scale and human impact, and our thoughts go out to all who have been affected by the outbreak of the coronavirus.  In addition to the obvious health concerns, there are significant financial concerns as many businesses struggle to survive and workers endure layoffs. 

The team here at Sokolis Group recognizes how challenging this period is and feels very fortunate to have the opportunity to continue providing fuel management services to our clients.  Our clients’ fleets and drivers are critical to distributing the goods and services necessary during this time.  We are here and ready to do whatever we can to support them.

During 2019, months before the virus emerged, we had already made the decision to move toward a virtual office environment.  By the end of 2019, our team was fully acclimated to working remotely every day.  In hindsight during this difficult time, we were fortunate to have already completed the transition. We recognize many companies are now just learning how to manage a remote workforce.

The key to our ability to maintain continuity of service is based on using cloud technology that allows us to support our clients and stay connected as a team.  Please continue to contact us via phone and email as usual.  We’re here for you. 

We will continue to monitor the fuel market for any changes and send out any additional updates if necessary.  In the meantime, should you have any questions, please feel free to reach out to your primary contact at Sokolis Group.

Oil prices began to show some potential to recover in early February following their sharp drop in January.  However, by the middle of the month, another sharp decline occurred with prices closing February just under $45 per barrel.  Oil prices have now fallen almost 27% since the beginning of the year and are about 22% lower than the same time last year.  The following graph shows the daily price movements over the past three months:

The rapid decline which started during the second half of January was caused by the Coronavirus outbreak.  As February began, optimism towards containment of the virus stabilized prices and they moved upwards.  However, by mid-February, new cases of the virus appeared in parts of the world that were not previously impacted, including a few cases with no clear connection to explain how it spread.  Fear grew about the contagiousness of the virus resulting in a reduction of global travel and economic activity.  As a result, prices dropped rapidly along with financial markets around the world.

Due to the significant decline during February, the overall average price for oil fell even further compared to January.  Significant declines also occurred for refined products.  The graphs below show the movement of crude oil (converted to gallons) along with wholesale and retail fuel prices over the trailing 15 months:

For refined fuels, retail prices did not show much change during the previous month but did start to fall in February.  The decline for diesel lagged wholesale while gas was quicker to catch up.  The result was that retail margins for diesel continued to increase to a very high level while gas margins declined toward a more typical range.  The following graph shows the retail margins over the trailing 15 months: 

Future oil prices will continue to be heavily dependent on developments with the Coronavirus.  As the spread of the virus appears to be widening, future global economic activity and the demand for oil will continue to decline.  Sokolis Group believes oil prices will likely remain in the $40 -$50 range for the foreseeable future until the spread of the virus declines.  Although OPEC+ is considering further reductions to their supply output to keep prices from declining much further, it may not be enough to offset the large reduction in demand caused by the spread of the virus.

If you’re concerned about the impact of future fuel price changes for your fleet and want to know if you’re receiving the best fuel prices possible, contact Conor Proud at Sokolis Group, cproud@sokolisgroup.com or 267-482-6159.  We are the nation’s leading independent fuel management consulting team and can help you make sure that your fuel management program is running at peak efficiency. 

Oil prices dropped sharply and unexpectedly in two stages during January.  Prices declined by 16% from the start of the year to close January just above $51 per barrel.  The following graph shows the daily price movements over the past three months:

The dramatic decline in January followed a tense period in December with rising oil prices.  Near the end of 2019, the US and Iran appeared to be moving toward a major military confrontation following the US’ assassination of one of Iran’s top military generals.  2020 began with anticipation that Iran would retaliate against the US leading to a potential all-out war in the Middle East.  However, Iran’s actual retaliation in early January was significantly less than expected, providing an opportunity for both sides to scale back tensions.  Oil prices reacted to the decreased risk of supply disruptions by falling rapidly during the first half of January.

Shortly after prices began to settle at a lower level during the middle of January, the next rapid decline began.  The cause of this decline was highly unusual; the Coronavirus outbreak originating in China.  The number of cases of the virus, along with the death toll, continued to increase in China during January.  In addition, outbreaks in other countries started to emerge.  Significant travel restrictions were implemented in China during a major holiday travel period, while other parts of the world also started to limit travel to contain the spread of the virus.  Oil prices, along with other financial market indexes, fell rapidly as future economic activity and demand for oil were anticipated to be much lower due to these limitations.

As a result of the rapid decline throughout January, the overall average price for oil fell compared to December.  Wholesale prices for refined products also fell while retail prices remained flat.  The graphs below show the movement of crude oil (converted to gallons) along with wholesale and retail fuel prices over the trailing 15 months:

For the refined fuels, retail prices barely moved which is typical during periods of rapid wholesale declines.  The result was that retail margins increased, particularly for diesel.  The following graph shows the retail margins over the trailing 15 months: 

Any prediction for where oil prices may go over the next few months depends heavily on progress to contain the Coronavirus.  Sokolis Group believes oil prices will likely remain in the low-$50’s with the potential to fall into the high-$40’s for a short period.  This assumes there are no other significant developments that negatively impact supply and cause prices to spike.  When new cases of the virus appear to have peaked, and optimism returns regarding travel and economic activity, oil prices should begin to recover their losses.  Increasing oil prices would typically not be a welcome change for fleets, but in this unique situation, it would be a positive sign from a humanitarian perspective.

If you’re concerned about the impact of future fuel price changes for your fleet and want to know if you’re receiving the best fuel prices possible, contact Conor Proud at Sokolis Group, cproud@sokolisgroup.com or 267-482-6159.  We are the nation’s leading independent fuel management consulting team and can help you make sure that your fuel management program is running at peak efficiency. 

Oil prices continued climbing higher throughout December, gaining over 10% to close the month and year at $61 per barrel.  Over the past year, oil increased by more than 33%.  The following graph shows the daily price movements over the past three months:

During December, two primary factors caused oil prices to move higher.  The first, during early December, was a surprise announcement from OPEC regarding their agreement to make deeper cuts in production.  The second, near the middle of the month, was an announcement that the US and China had reached a phase-one agreement toward resolving their trade war.  The anticipated supply reductions by OPEC combined with the renewed optimism toward global trade activity drove prices above the $60 mark.  The last time prices reached $60 was briefly during mid-September following an attack on Saudi Arabia’s oil production facilities.

Although December’s overall average price for oil increased compared to November, prices for refined fuels did not follow.  One of the main reasons fuel prices did not move up was because refining margins, commonly measured as the “crack spread,” declined which is typical during this time of year.  The 3:2:1 crack spread is based on producing two barrels of gas along with one barrel of diesel for every three barrels of oil.  The following graph shows the spread over the trailing 15 months:

Since diesel demand is typically strong during the colder months of the year, prices barely changed as the higher oil prices were offset by the lower crack spread.  However, gas prices declined modestly due to the combination of the reduced spread and slower demand during the colder months of the year.  The graphs below show the movement of crude oil (converted to gallons) along with wholesale and retail fuel prices over the trailing 15 months:

For both refined fuels, wholesale and retail prices moved similarly.  As a result, margins were relatively unchanged and continued to run at their typical levels.  The following graph shows the margins for over the trailing 15 months: 

As we begin 2020, Sokolis Group anticipates oil prices will continue to trade in the low- to mid-$60’s with greater potential to increase rather than fall back towards the $50’s.  Political and military conflicts are always a wildcard that can cause prices to spike at any time.  As we ended last year, air strikes were conducted by the US in Iraq and Syria.  These were followed by protesters storming the US embassy in Iraq as the US blamed Iran for stoking the tensions.  And most recently, a US drone strike killed one of Iran’s most senior military leaders as he traveled in Iraq.  Iran has vowed military retaliation.  As the tensions continue to rapidly rise in the Middle East, the risk of fuel supply disruptions also increases and may drive prices higher.

Additional supporting factors for rising prices include OPEC’s deeper production cuts, although the impact remains to be seen, particularly with compliance levels.  Also, continued progress toward unwinding the US-China trade war is anticipated to take place as the phase-one agreement is scheduled to be signed mid-January.  Finally, we should begin to see the true impact of the IMO 2020 maritime fuel transition which went into effect on January 1^st and is expected to increase the demand for oil and diesel fuel. 

If you’re concerned about the impact of future fuel price changes for your fleet and want to know if you’re receiving the best fuel prices possible, contact Conor Proud at Sokolis Group, cproud@sokolisgroup.com or 267-482-6159.  We are the nation’s leading independent fuel management consulting team and can help you make sure that your fuel management program is running at peak efficiency. 

Oil prices slowly climbed higher throughout November but gave back most of their gains at the end of the month.  Prices opened the month near $54 and closed just over $55 per barrel.  The following graph shows the daily price movements over the past three months:

There were no significant developments in November that drove prices gradually higher.  The main reason was attributable to cautious optimism that the US and China would reach a Phase 1 agreement toward resolving their trade war.  However, prices sank at the very end of the month as President Trump signed a bill supporting pro-democracy demonstrators in Hong Kong in defiance to China’s threats of retaliation.  Oil traders worried that any resolution to the continuing trade war would become less likely than previously anticipated.  As a result, the outlook turned pessimistic for future economic growth and demand for oil.

Despite the decline in prices at the very end of the month, November’s overall average price for oil increased slightly compared to October.  Average wholesale and retail prices for diesel also increased slightly as demand remained strong.  Meanwhile, gas wholesale and retail prices declined slightly as demand slowed.  The graphs below show the movement of crude oil (converted to gallons) along with wholesale and retail fuel prices over the trailing 15 months:

Since retail and wholesale prices for diesel and gas moved in sync, margins were relatively unchanged.  For both fuels, retail margins continue to run at their typical levels.  The following graph shows the margins for over the trailing 15 months: 

As we wind down 2019 and look forward the start of 2020, Sokolis Group anticipates oil prices will continue to trade in the mid-$50’s with the potential to move toward $60 or more per barrel.  The biggest drag on any price increases continues to be the US-China trade war.  Mid-December will bring a significant indication of any progress as additional tariffs are scheduled to go into effect but could be called off.  Oil prices will be very sensitive to this decision. 

In addition, OPEC and Russia will meet in December to discuss the possibility of making deeper production cuts to support higher prices.  It is likely they will not take any further action until 2020 is underway but a surprise move to lower production would likely cause prices to increase.  Another factor that has not fully impacted prices yet is the IMO 2020 maritime fuel transition which takes effect on January 1^st.  Demand for oil and diesel fuel is expected to increase from IMO 2020 while demand for heating oil (essentially diesel fuel) will be increasing during the colder months.

If you’re concerned about the impact of future fuel price changes for your fleet and want to know if you’re receiving the best fuel prices possible, contact Conor Proud at Sokolis Group, cproud@sokolisgroup.com or 267-482-6159.  We are the nation’s leading independent fuel management consulting team and can help you make sure that your fuel management program is running at peak efficiency. 

SOKOLIS GROUP WINTER FUEL TIPS

• Replace fuel filters at manufacturer recommended intervals.  Particles in the filter make it easier for wax to gel.  Use the highest OEM accepted micron filter possible.
• Keep your fuel tanks full and free of water.  Cold air on top of warm fuel creates condensation.  This can be reduced by limiting the amount of space in your tanks.
• Test any bulk tanks for water.  Water freezes faster than the wax in the fuel.  If your fuel has 100 ppm or higher water content, it should be treated with a drying agent.
• Drain fuel water separators weekly and be sure to monitor them even between scheduled maintenance.
• Open the drain at the bottom of the fuel tanks to drain off any water &/or sediment.
• If your vehicle is going to be idle for long periods of time (4 hours or more) you may want to install a fuel heater or find heated parking.  Moving liquid takes longer to freeze than stationary liquids.  Keep your fuel moving or keep it warm.
• Tighten all fuel tank mountings and brackets. At the same time, check the seal in the fuel tank cap, the breather hole in the cap, and the condition of the flexible fuel lines.  Repair or replace the parts, as necessary.
• After your vehicle has been off the road for an extended period, start and let the engine idle for 30 or more minutes allowing warm fuel to return to the fuel tanks to break up any wax buildup.

DEF (Diesel Exhaust Fluid) and cold weather

• DEF is required to remain pure to operate correctly.  Additives should never be added to DEF.
• DEF freezes at 12 degrees F.  The 32.5% urea concentration in DEF allows both the urea and water to thaw at the same rate, therefore keeping the solution from being diluted or over concentrated.
• SCR systems are designed to provide heating to the supply tanks and lines during normal operation.  If the DEF freezes when the vehicle is idle, normal start-up and operation will not be inhibited.  The DEF will thaw as the vehicle is operated.  Freezing and thawing will not degrade the product.

If you need additional help or suggestions on your winter fuel program, please contact Conor Proud at 267-482-6159 or cproud@sokolisgroup.com.  For further help with your fuel management program or to lower your fuel cost, visit us at www.SokolisGroup.com.