Debate continues: have Oil prices hit bottom? And what about the refinery strikes?

  • Debate continues: have Oil prices hit bottom? And what about the refinery strikes?

    According to the Wall Street Journal today, we have an ongoing debate as to whether or not oil prices have hit rock bottom.

    On one hand, we have seen the price of crude increase recently and now oil prices are back up above $50 a barrel. Oil producers in the US are reportedly cutting back on drilling, where the weekly count of rigs drilling for oil has dropped to the lowest level since August 2011, and oil companies have announced plans to lower their future spending. Aramco, the Saudi Arabia owned oil company, has announced they are considering cutting their future spending on production and exploration by up to 25%.

    On the other hand, the US Energy Information Administration just announced that oil inventories increased by 7.7 million barrels in the week ending February 13. Their report said the US is on track to hit a 42 year high this month. Here we have an indication that output is not yet cutting back. And we’re in the middle of the annual February – March cycle where demand is at its lowest. In other words, oil supply continues to outweigh demand. Certainly it appears that in the near term, production will continue to keep us in an oversupply situation.

    The ongoing US refinery strikes are three weeks old now, without any impact on gasoline prices. Refineries are hurt by roughly 200,000 barrels a day by the strike, and that amounts to a little over 1% of the daily US consumption which is 19 million barrels a day.

    What does that mean from a fuel price management perspective? We’re seeing the traditional upward trend of springtime wholesale prices, along with upward trending retail fuel prices, and downward trending retail fuel margins. Gasoline futures also continue to rise. What remains to be seen is whether or not fuel volume demand repeats the strong numbers seen at the end of 2014. Retail fuel pricing competition remains strong, and the business is not for the weary. Retail fuel pricing software like PriceAdvantage is the way to the competitive edge.

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