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Fuel Oil News
PO Box 2123, Skokie, IL 60076-7823
I
t is time once again for our midseason fuel pricing report. We do two price reports
each year, one right before heating season and one around this time when a number
of hedging decisions are being made. I'll reiterate the disclaimer that these pricing
reports are simply for educational purposes and the fundamentals discussed can
change radically between the time the interviews are conducted and the issue goes to print.
While the nuances can change, what's becoming pleasantly repetitive is the bearish
nature of these price reports: generally, abundant supply and abundant storage leading to
lower prices. This applies to both crude and refined products. In fact, we may be at a point
where we will see just how low those prices can go. On the crude front—and crude is the
primary component of refined product price—oil has already dropped below $30 per bar-
rel and some see it perhaps dropping below $20 per barrel.
While prices may go that low and perhaps stay there for some period of time, there seems
to be a consensus among analysts that a realistic bottom would be perhaps in the mid-$30
per barrel range and a reasonable baseline price more long-term somewhere between $40 per
barrel and $60 per barrel. Quite remarkable. It is particularly remarkable when you remem-
ber the outcry in the early 2000s when OPEC announced that it would maintain a price
basket on oil in the low $20 range as the oil glut of the 1990s came to an end. Needless to say
that price basket failed to hold and prices and volatility ramped up drastically year after year.
Today's prices are being driven primarily by Saudi Arabia in its ongoing attempt to pre-
serve market share and damage the US shale oil production sector. It's a battle that Saudi
Arabia will lose, if it has not done so already. The country relies upon oil in the $80-per-
barrel range to maintain its social programs and it's extraordinarily difficult to see a return
to that price short of a full-scale major regional conflict in the Middle East. Our shale pro-
duction seems far more resilient by comparison.
With the sanctions lifted on Iran, a significant quantity of crude is poised to enter
the marketplace. Similarly, and unfortunately, the world economy seems to be growing
weaker instead of stronger, meaning that demand will not likely provide a significant price
support. News out of China is particularly grim.
Chinese demand, actual and potential, has been seen among the investment set as the
underlying rationale for higher oil prices. I've never been fully on board with that concept
given the great many structural weaknesses inherent in both a centrally managed, com-
munist structured economy, and the numerous social tensions in a country where the new
billionaires coexist with a significant portion of the population that still meets its energy
needs by burning animal waste. Given the global ramifications of a Chinese economic col-
lapse, this is one case in which I really have no desire to say, "I told you so."
l F O N
Keith Reid
8 FEBRUARY 2016 | FUEL OIL NEWS | www.fueloilnews.com
The oil glut continues
...what's becoming pleasantly repetitive
is the bearish nature of these price reports
