Diesel price outlook higher
February 24, 2012
The Iran situation is finally creating real tensions in the oil markets and crude prices are showing the effect, currently over $108 as of this writing. This is the highest price we have seen since they were falling after the early 2011 surge in price. Pump prices have also been moving up. After hitting a low of $3.85 in late January diesel prices have jumped to $3.96 in just 4 weeks. We expect the pricing pressures to continue for at least several months. If Iran actually goes through with their threat of fully closing the Strait of Hormuz prices would quickly skyrocket – possibly topping the record set back in 2008. We still believe that the actual time that the strait would be out of commission would be relatively minor, but the damage would already have been done by the world’s commodity traders. We look for the Iran situation to have an effect on the market for the next 4-6 months.
Our fuel price outlook has moved significantly higher for 2012, on the heels of higher crude pricing from Iranian actions. Prices started the year off relatively weak but have been moving higher at a significant pace as of late. Our forecast for Q1 is relatively unchanged, but the outlook for the middle of the year is significantly higher. For the last several months we had been showing prices stabilizing at right around $4 throughout the year. We now see prices moving higher for several months before easing slightly later in the year. Currently, we are assuming a high of $4.18 per gallon in the late summer period. Unless something more drastic happens (see above) we don’t expect the price of diesel to spike significantly above that level, but weekly variations are hard to predict.
Year-over-year gains continued to subside into January and were under 15%. The year-over-year impact will continue to lessen as we get further into 2012. With prices dropping last year starting in May and our outlook for pricing gains during that time we expect to see reasonable strength in year-over-year gains during the summer months.
Both volatile and stable
Pump prices have the knack of being quite volatile: whether it’s because of weather or crude oil prices or supply concerns or one of a hundred other reasons. We are seeing that take shape right now.
Supply and demand fundamentals don’t point to strong growth in oil pricing until late 2012 – once global demand has had time to heat back up. The recent improvements in economic data, if accelerated, could move that to mid-2012. We continue to point out the obvious that politics is a wild card (once again, see above). Despite that, the economic fundamentals for a more stable pricing environment remain intact.
About Our Fuel Outlook:
We are not fuel experts. Nor do we desire to be. But, fuel is first or second in your costs categories. You have to be prepared for swings in this category. Use these numbers as a rational basis for understanding where fuel costs are headed; knowing that even relatively little problems can create quite large (short-term) fluctuations in the oil markets.
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