Fuel Flash – February 2024

Oil prices remained in the low $70’s per barrel during the turn from 2023 to 2024. Even with things remaining volatile in the Middle East, weak demand and strong supply continue to overpower the market’s concern for global conflicts. The following graph shows the daily price movements over the past three months:

By mid-month, the conflict in the Middle East intensified enough to cause oil to spike briefly above $78/barrel. Iran hijacked a U.S. oil tanker in the Gulf of Oman and several other missile attacks were carried out by the Houthis on U.S. ships. This caused the U.S. to retaliate with missiles of their own and divert ships from the Red Sea. Any diversion from the Red Sea will cause delays to transit time, slow down supply, and in turn cause fuel prices to rise.

The graphs below show the movement of crude oil (converted to gallons) along with wholesale and retail fuel prices over the trailing 15 months:

Diesel and gas prices continued their downward trend in January as they did for the last several months of 2023. Diesel retail was slightly quicker to drop than wholesale, resulting in a drop in profit margins for suppliers. Gasoline had a very similar path as retail’s dip was steeper than wholesale this month causing profit margins to be lower. The following graph shows the retail margins over the trailing 15 months:

According to AAA, gas prices finished at approximately $3.14/gallon in January, an increase of $0.04/gallon compared to last month. Diesel prices were down just $0.04 compared to December finishing at $3.94/gallon in January.

Oil finished January just below $76/barrel. Due to the conflict in the Middle East, signs of a strong U.S. economy, and demand looking brighter for China and India, oil prices were elevated compared to the last several months. We’ve had our first few winter storms across the county causing supply disruptions in North Dakota that are still not fully recovered and running at 100% capacity. With all that said, we would typically expect oil prices to be closer to $100/barrel, but that is just not the case in today’s market.

Sokolis will continue to monitor the many factors going into fuel prices. We currently anticipate that oil prices will range between $70-80/barrel in the early parts of 2024.