The staff of FUELSNews presents FUELSNews 360° Q2 2017
Quarterly Report: Market News & Information.
FUELSNews 360°, published four times a year by Mansfield Energy Corp., analyzes and summarizes the prior quarter’s activity in the oil, natural gas, renewables and refined products industries. The purpose of this report is to provide our customers industry market data and trends both domestically and globally and deliver some insight into upcoming challenges facing the energy supply chain.
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Check out this excerpt from the Executive Summary:
After a quiet first quarter of the year, Q2 has seen a significant increase in market action, with markets rising and falling several times. The highlight of the quarter was OPEC’s announcement of a production cut extension, lengthening their deal through March 2018. The organization’s lack of an exit strategy after March brought crude prices from $51/bbl in May down to $42/bbl in June.
The fundamentals of the quarter were decidedly bullish. Crude inventories failed to return even to their 2016 level, and both diesel and gasoline stocks remain far above their 2012-2015 range. Despite near-record levels of summer gasoline demand, U.S. production has grown quickly and helped mitigate upward price pressure. Rising production in Libya and Nigeria has also alleviated supply concerns.
At the regional level, the battle for market share in Pennsylvania continues, with products flowing into Pittsburgh both from Chicago-area refiners as well as from East Cast refiners. Politicians are also considering selling up to one million barrels from the Northeast Gasoline Supply Reserve. Given these trends, Northeast consumers should enjoy relatively low prices compared to the rest of the country in the coming quarter.
On the other side of the country, a project to expand crude transport capacity will nearly triple the amount of crude oil flowing through the Trans Mountain Pipeline from Canada to the Pacific Northwest. The project likely will not see completion until 2019, but could help benefit consumers in Washington and Oregon in the future.
Looking towards Q3 2017, markets will be seeking clarity and direction. After floundering in Q2, many analysts expect fuel supplies to grow tighter in Q3, leading to dwindling inventories and higher prices in Q4. In May, the forward curve showed a large drop in fuel prices following the expiration of OPEC’s production deal; by the end of the quarter, the curve had switched to continuous month-over-month gains, with forward expectations turning bullish.
Hurricane season will surely add some volatility over the coming quarter. Early season activity has been higher than usual, and weather forecasters expect 2017 to bring above-average storm activity. Depending on the location of the storm, a strong hurricane could have a severe local or national impact on fuel prices.
As has been the case for nearly a year, OPEC will continue to dominate headlines in Q3. All eyes remain on whether compliance rates can remain high, and whether North American production will offset some or all of OPEC’s actions.
Overall, markets were strongly bearish as we ended Q2, but that may not necessarily translate into weakness in Q3. Inventories are falling, albeit slowly, and global economic growth (and accompanying fuel demand) appears to be gaining steam. Many factors—geopolitical, fundamental, and economic—will be competing to push prices either higher or lower in Q3, making any accurate forecast difficult.
If the OPEC and Non-OPEC agreement holds and inventories begin falling rapidly, we may finally reach the supply/demand balance analysts have been predicting for months. If not, North American shale supply could overwhelm the market and send crude prices crashing back down below $40/bbl. Whichever way the markets turn, it is certain to hit some bumps along the way.
This quarter, Tom Krizmanich provides the first in a three-part series on natural gas procurement. This quarter’s article focuses on the history of the natural gas market, as well as an overview of how natural gas is purchased and sold. Make sure to read FUELSNews 360° next quarter, where we’ll focus on sharing best-practices for natural gas procurement teams, as well as key questions to ask your supplier to ensure you are receiving the best service to meet your needs.
We hope you enjoy this quarter’s issue of FUELSNews 360°. Please feel free to email us at firstname.lastname@example.org with feedback, questions, or simply to request additional copies. Thanks for reading!