MarketsFarm — Fuel prices are very likely to continue to increase with summer approaching, according to Tom Kloza, the Florida-based global head of energy analysis for Oil Price Information Services.
“I wish I could say there’s a light at the end of the tunnel, but I would say right now, it’s just a flicker,” he said, referring to consumers who are apoplectic about prices as being ‘petro-plectic.’
Kloza pointed a good chunk of the blame for the record-high prices on the exploration companies, the production companies and especially the refiners. He said refiners most often make $5 to $25 per barrel, but are now raking in $50 to $60/barrel (all figures US$).
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“If they are running Canadian crude through the Great Lakes…it’s probably closer to $75 to $80/barrel. Those [prices] are not typical, those are epic,” he said.
While crude oil prices are certain to push higher, he doubted if they will top the $150/barrel as some analysts have suggested. Rather he expects them to be in the $120s per barrel, perhaps pushing above the March high of $130.50, but not much more.
Kloza explained there are three key reasons for the price hikes, with one being demand.
“It’s the perceived spike in gasoline demand and the overall increase in diesel demand that’s tied to China coming out of its lockdowns,” he said.
The second reason is the tight supply of diesel, especially in the U.S., and the third being the speculative flaws in the market.
“You’ll find that among the different classes of speculators, a small speculator does not have to report to the Commodities Futures Trading Commission. They can control $30 million worth of fuel. That’s badly in need of an update,” Kloza stressed.
Added to that is the large amount of managed and fund money that’s “very skewed to the long side.”
As for Canadian crude prices, Kloza said the price differential is unusually high at this time.
As of Friday, the difference between the market prices for West Texas Intermediate crude oil was $20.77/barrel higher than Western Canadian Select. Most often the differential is around $13/barrel.
— Glen Hallick reports for MarketsFarm from Winnipeg.
