Fuel Report for Upcoming Months

As we all know, none of us can predict the future. However, we can budget for the future and take out upside risk on fuel prices.

What we have seen and heard about market conditions is most analysts believe that prices for gas and diesel fuel will still continue to go down in the futures markets. Currently today at the pump, gas and diesel fuel both have margins ranging from 20-50 cents per gallon. These margins will continue to go down over the next few weeks. The real key is what happens in future months when looking to hedge.

Traditionally, a good time to buy diesel fuel is during the summer months before demand for heating oil raises in the Northeast. There is only a certain amount of Number 2 oil you can get out of a barrel of crude oil. Some of that will go to heating oil and some of that will go to diesel fuel. Depending on the weather in some past years diesel fuel likes to take a dip in price in October as well.

On the gas price side, once we get through the summer time, gas becomes a much less hot commodity and with improved gas mileage cars, hybrids and the fact that most of the world uses diesel fuel instead of gas, you should look to do something with gas in the last quarter of this year.

Market factors that are placing downward pressure on prices:

• U.S. unemployment rose to 8.2% in May from 8.1%, the first increase since last June and created only 69,000 jobs, the fewest jobs in a year.
• China’s manufacturing PMI number came in lower than expected at 50.4 compared with 53.3 in April adding to market concern about a slowdown in China’s economy.
• Mounting worries about Europe’s ability to stabilize their debt crisis.
• Continued oil production both domestically and from Iraq and Saudi Arabia’s ability tocover any incremental needs.

Market factors that may result in higher diesel fuel prices and gas price:

• If growth in China picks up, Brent Oil and WTI Crude Oil prices will likely move higher.
• Supplies of OECD oil and distillates are well below their historic average for this time of year. Tighter supplies generally translate to higher prices.
• The outcome of the Iranian nuclear situation continues to be uncertain, but may negatively impact Iran’s ability to export oil.

Just over the last 4 days crude oil has gone up almost $6 a barrel because:

• Crude oil stocks at an all time high dropped for the 1^st time in 10 weeks
• The U.S. Federal Reserve’s talking about a possible easing policy
• China’s central bank cut its key interest rate to help shore up a slackening economic growth

The point being is you can never guess where the bottom is going to be. I can’t see crude oil going above $90 a barrel in the near term. Nor can I see any rise to diesel fuel prices or gas prices; unless we have a major issue in the Middle East or Hurricanes.