During August, oil prices continued trading in a very narrow range but did achieve a small gain, starting the month at $41 and closing near $43 per barrel. The following graph shows the daily price movements over the past three months:
Significant uncertainty about the economy due to the virus’ impact has persisted for several months which has limited movement in prices. In addition to oil’s stagnancy, overall average wholesale and retail prices for August were flat compared to July. 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 remained steady compared to the prior month, retail margins also barely
changed. The following graph shows the retail
margins over the trailing 15 months:
The outlook for oil prices over the
next few months continues to be highly dependent on the course of
COVID-19. Sokolis Group believes oil prices
will continue to trade in the low- to mid-$40’s per barrel through early September. As fall begins, ongoing concerns about a
resurgence of the virus will likely remain with the potential to increase restrictions. However, any additional progress toward
controlling the virus could result in increasing economic activity and demand
for fuel. If so, prices would likely rise
toward $50 and beyond through the end of the year.
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.