Retail diesel prices are in the midst of a significant decline, as measured by the weekly Department of Energy/Energy Information Administration price, down more than 32 cents a gallon in the past four weeks.
Even in the face of these declines, some key analyst voices are projecting significantly higher prices in the fourth quarter, though it’s far from a consensus.
The weekly DOE/EIA price effective Monday dropped 8.2 cents a gallon to $4.294 a gallon. It’s the fourth consecutive week in which the benchmark price used for most fuel surcharges fell and the 13th time in the past 16 weeks. During the previous four weeks, the price has dropped 32.8 cents a gallon.
Monday’s price is 19 cents per gallon more than the price posted the Monday after Russia invaded Ukraine, when retail pumps would not yet have reflected higher market moves in response to that action.
The downward move in retail diesel prices has been driven by pump prices catching up with earlier declines in futures and wholesale diesel prices. The FUELS.USA price on Monday in SONAR, measuring the price between average national retail diesel prices and average national wholesale diesel, was $1.467 a gallon. On Feb. 18, it was $1.618.
International crude benchmark Brent stood at $82.67 a barrel at the settlement on the CME commodity exchange Jan. 11. On Monday, the settlement was $82.45. Prices during that interim dropped below $80 a barrel briefly and settled at more than $87 and even $88 a barrel a few times. But overall, the market has been relatively stable.
However, that’s not the way a few key Wall Street analysts see it headed. On Monday, in an interview on Bloomberg TV, Goldman Sachs’ head of commodity research, Jeffrey Currie, whose words are watched closely in oil markets, said he saw a strong case for higher prices by the end of 2023.
“Our conviction in the bull case has never been stronger,” Currie said. He cited a lack of significant spare capacity in markets, and low inventories for most crude and products, with the result that “you have no buffer to deal with the rebound in demand that is likely to come out of China.” He also cited what he forecast as “strong” economic activity in Europe.
“As China starts powering ahead, that is going to tighten up the bull market,” he said.
Currie in recent weeks said Goldman Sachs believed a strong economy could push Brent up to $110 a barrel by the end of the year.
On the other end of the spectrum Monday was the forecast of Bank of America Merrill Lynch.
It cited the combination of “higher Russian output/decelerating macro” as leading the bank to cut its forecast on Brent to an $88-a-barrel average for the year, down from $100 a barrel.
Its forecast noted that Russian output has exceeded expectations in recent months despite the layers of sanctions on that country’s output. Unlike Currie’s reference to tighter inventories, BOA said that “increased commercial inventories are also contributing to a meaningful reduction in volatility across the oil market, reducing the risk of a spike in oil prices much above $100/b this year.”
Currie’s views got backing in an interview with Russell Hardy, the CEO of trading giant Vitol, also on Bloomberg TV.
Hardy said European energy consumption was down by almost 25% this winter, according to Vitol’s calculations, from a combination of conservation efforts and a warm winter.
“The prospect of higher prices in the second half of the year, in the sort of $90-$100 range, is a real possibility,” Hardy said. “You don’t have much room on the supply side, so the potential for a rally is certainly there.”
In its February monthly report, the International Energy Agency did forecast fourth-quarter global oil demand at close to 103.5 million barrels a day, easily the highest in history. In contrast, the IEA estimates that global oil demand in the COVID-impacted market of 2020 averaged 91.52 million barrels a day for the year.
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