Diesel prices increase faster than expected
August 23, 2012
As is want in the fuel markets, prices have fallen dramatically and bounced back just as quickly. We expect that we are near the end of the price increases as we have yet to see a monthly fuel price much above $4.10 over the last 2 years. Diesel prices in July fell 1.0% compared to June and were down 4.7% versus the prior year.
Last month we said:
“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.”
Obviously we rebounded a little faster than we anticipated. We still feel that the equilibrium price remains in effect – we just got there a little faster. A small overshoot wouldn’t surprise us.
After lowering our expectations significantly last month, they have now quickly moved back up. We feel that pricing has gotten back towards its equilibrium price, just faster than anticipated. We still expect that year-over-year gains will be 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 as we move into 2013.
Global economic worries are 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 of late. That leads to a return of modestly higher prices –getting back to average pump prices near $4 by the end of the year.
Our forecast calls for prices to average $3.90 for the rest of Q3 (the latest week is just above $4, so there is likely some upward pressure in Q3), $3.99 in Q4, and then getting just above $4 as we move into 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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