Diesel price outlook moves lower
July 23, 2012
Media commentators went from calling for $5 pump prices in the near future to the possibility of seeing $3 before the end of the year. Of course, they are wrong on both fronts. Supply and demand indicators continue to indicate that we are near equilibrium with sluggish economic growth helping keep us in a mild oversupply situation. Once the Iranian fears were removed, oil prices quickly adjusted.
If economic growth is able to stay afloat, then oil prices will slowly rebound back towards the $100 mark – our best approximation for near-term equilibrium pricing. The supply and demand fundamentals are not indicating that a prolonged downshift in prices should continue to occur. Global economic worries are obviously impacting the current environment. In time those worries will either be realized or reduced. Our inclination is to go with the latter – but that has waned some of late. That leads to a return of modestly higher prices – not getting back to average pump prices above $4 until well into 2013.
Diesel prices in June fell 5.5% compared to May and were down 4.4% versus the prior year. They stood at $3.76 in June, down from $3.98 in May and $3.93 a year ago.
Weak economic growth and modest stability in key oil states has lowered our near-term diesel expectations. We don’t expect to see too much up or down movement over the next few months. We then expect to see pricing pressures move slowly back upwards during the rest of 2012 and get back to the $4+ mark during early 2013. That keeps year-over-year gains relatively flat for the balance of 2012 and for the first half of 2013. Global economic and political shocks will always keep the oil markets volatile but the overall supply and demand fundamentals point to diesel prices near the $4 mark in 2013.
The scout’s motto holds ever true in effectively managing fuel costs. 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. Remember: fuel costs can quickly change. Be prepared.
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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