Crude oil entered June around $62/barrel, with futures still sluggish due to ongoing concerns about soft demand and increased production. This was merely the calm before the storm, however. After a listless first trading week, a 5% price jump on June 11 hinted at the pricing roller coaster to come. This spike came as the U.S. announced they were partially evacuating its Iraq embassy due to rising tensions with neighboring Iran. A slight price retreat the following morning quickly reversed itself when Israel launched airstrikes on Iran’s nuclear facilities, driving prices over $70/barrel and kicking off two weeks of wild price action. The following graph shows the daily price movements over the past three months:
By June 17, WTI crude leapt over $73/barrel as Iran and Israel traded missile strikes. Uncertainty reigned as traders weighed a variety of potential escalatory events: direct involvement by the U.S., expansion of military action beyond missile strikes, as well as the specter of a potential blockade in the Strait of Hormuz which could effectively “shut in” a huge percentage of the region’s oil tankers, preventing neighboring countries from shipping oil out of the Persian Gulf. By the 19th, intraday prices climbed as high as $79/barrel, marking a 27% increase since the start of June. Direct U.S. strikes on Iranian nuclear facilities on June 22 did little to move the needle, however, as traders awaited Iran’s reaction. Iran’s response arrived in the form of a very limited airstrike on U.S. military assets in Qatar, with little to no damage and no casualties. As the threat of further escalation subsided, Oil began a sharp retreat from its midmonth highs, falling all the way to $65/barrel by month’s end.
The graphs below show the movement of crude oil (converted to gallons) along with wholesale and retail fuel prices over the trailing 15 months:
In June, diesel profit margins continued a three-month downward trend, falling below $0.45/gallon. Gasoline retail margins, however, were generally flat compared to May at $0.31/gallon. The following graph shows the retail margins over the trailing 15 months:
According to AAA, the national average retail price for gas stayed flat in June, lingering at the $3.15 mark. The national average retail price for diesel finished June at $3.60/gallon, up ten cents compared to May.
Despite the rollercoaster price action, WTI crude managed only a 7% gain within a very tumultuous June. Middle East turmoil did relatively little to assuage the bearish outlook on futures, as prices remain sluggish due to demand and oversupply concerns and are down 9% since the start of the year.
Sokolis projects that oil prices will range between $60-$70/barrel for the foreseeable future, as the market made it apparent in June that it would take a lot more escalation in the Middle East to sustain any long-term price increase. The gloomy macro-outlook and concerns of oversupply continue to cloud the mood of traders despite the occasional reactionary spike to events such as the Israel/Iran conflict. Your fuel pricing experts at Sokolis will continue to keep an eye on the market and keep you informed.
