$7 Diesel Likely: Global Tensions, Winter Months Make Energy Risks More Widespread

SPEAKER_1 (0:00)

And it's time for our 360 round. Let's bring in our panel to discuss the latest in the energy market. Joining us today, Patrick De Haan, Head of Petroleum Analysis at GasBuddy, and Robert Yawger, Director, Futures Division at Mizuho Americas. Great to have you both with us. Patrick, let's start with you here. I mean, gas prices are lower than last we spoke, but Americans are still spending hundreds of millions of dollars more per day on fuel.

How long are we expected to handle these higher prices, and is there anything you see in the future that would send them lower?

Patrick De Haan (0:35)

Well, certainly the million dollar question, as you mentioned, Americans now collectively have spent about $135 billion more filling their tank up, and there's really no signs of relief. You mentioned the national average has ticked a little bit lower. A lot of that influence in seeing gas prices decline so far has been states. North Carolina, the most recent that suspended gasoline taxes, along with states like Indiana, Ohio, Utah, and Kentucky, a lot of states are looking at ways of relief. That's really the artificial factor pushing the national average lower right now, whereas diesel prices have been modestly higher in the last couple of days.

Whether or not we'll see much meaningful relief in the weeks ahead is really more function on geopolitical tensions, of course, the US and Iran and increasingly Houthi attacks, as well as Ukraine and Russia. Russia seemingly continuing to attack Ukraine. Ukraine just, I think, two days ago, Zelensky saying that they're done with the Russian games and they're going to go back to attacking Russian oil refineries, which could send gasoline and diesel prices higher yet.

SPEAKER_1 (1:38)

And Bob, how are you looking at prices right now? I mean, we're looking at WTI, I think up about 6% just on the week last I looked. We've got Brent now holding north of 106, we're at 106.17.

How are you looking at this? Is this geopolitical risk premium that's being priced in? Or is there concern of a genuine supply shortage that could potentially push us higher here?

Robert Yawger (2:03)

Well, we definitely have a supply shortage versus last year's numbers, no doubt about it. Hence, we're trading around $100. Now, WTI is up strongly this week, but that's largely a function of the hurricane last week. It took about maybe 600,000 barrels off the market. We're back down to around less than 100,000 barrels off the market right now. So we did have production taken off this week, and crude oil in the United States has responded accordingly. We are up every day until today. Today will be the first down day if we actually do settle lower. But in the long term, it's not a good story.

The Iranians have hit more boats this week than they have in the entire war. So that's not a good trend. There's widespread speculation that once the midterms are over, that will unleash the Trump administration to settle the scores with the Iranians, and that would rally the market considerably, I would tend to think. And the diesel situation is on the cusp of spiraling out of control.

You send a bottle of crude oil through the refinery, it comes out the other end of the refinery as a barrel of diesel, that's called the heating oil crack, or the diesel crack. That is over $100 right now. You send a $100 barrel of feedstock crude oil through the refinery, it comes back worth $100 worth of diesel. Those are numbers the refinery has never seen before in this country. So that threatens to get much worse, because it's not even winter yet. Storage is only 2 million barrels away in diesel, from sliding below 100 million barrels for the first time since 2003 There are some of your viewers out there that weren't even alive in 2003

So we're threatening multi-decade lows in diesel storage here, and that can only send prices higher, really at the end of the day, no matter what happens in the war.

SPEAKER_1 (4:08)

Patrick, so let's talk about this divergence here, because we are seeing the gas prices go lower, but diesel is still elevated here. I was looking at some of your GasBuddy data. It says 47 metro areas have averaged diesel prices that are more than three gallons higher than a year ago.

And as Bob just pointed out, we haven't even come into peak heating season here. We're already seeing elevated inflation numbers because of this. How are you looking at how widespread this pressure is, and how much more impactful it's going to become as we get into these colder months? And we also, what does it mean for trucking companies, for farmers and for the consumer?