Fuel Lines April 2009

You might be asking yourself, "Why are fuel prices going up?". Gas prices are up 20 cents since the beginning of the year. Diesel prices are actually down for that same period, but up 13 cents over last week. Why is this? That's a great question.

Yes, we have plenty of inventories of all products. Yes, the economy is still slumping. Yes, OPEC, last month, decided not to cut production. Oh yes, refiners are producing less product then they are capable in an effort to control the fuel price. That's a practice that can't happen for long. What refiners have done over the past few months was slow production so fuel costs stay high. (Side note, the word high is really relative, last year instead of paying $2.05 a gallon for gas we were paying $3.30 and for diesel fuel instead of the $2.22 a gallon we pay today, last year was $3.96) Ok, when I say high I mean high compared to everything else going on in the world. What refiners have had to do more recently is increase production because of the amount of crude in the market place.

A friend of mine, U.S. analyst and trader, Stephen Schork, said this about fuel in The Schork Report, "We are swimming in oil." We are swimming in oil because production is strong and demand is weak... and it is going to remain that way in the short run. Commodities traders are choosing to ignore blatant bearish metrics and are instead attaching themselves to any positive thread the bulls can conjure up, such as stock markets and the weaker dollar.

Now, we heard from someone down on the floor what is going to happen. Click here to provide us with your view of what is going to happen. We will let everyone know next week what readers speculate is going to occur in the fuel market with price. Sokolis Group continues to believes, as we have stated in past Fuel Lines editions or on Fuel Advise that trading for crude oil will stay somewhere around $40-$60 a barrel. More specifically, under $50 until later in the year when we feel Obama Stimulus plans will start to have some positive effects on the economy. At that point, we still don't think fuel prices are going to go crazy but trade in range of around $60, give or take. For the short term (6 months) this means the national average for a gallon of gas will sell anywhere between $1.95 and $2.25. Not bad really considering what you will pay for a quart size bottle of water. Diesel fuel will sell for $2.10 to $2.65 a gallon. These fuel prices are without any tax increases or hurricane effects.

Let's buckle up and see what happens. Sokolis Group information click here for all of your fuel management and fuel consulting needs.