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Fuel Price Commentary
Crude and Brent have both experienced significant weakness since the Saudis enacted price cuts to the North American market instead of OPEC adopting supply constraint. The Brent-WTI spread has also contracted dramatically from slightly over $9 to low single digits over the past 6 months. Diesel fuel inventories remain tight, although not as tight as earlier in the year. Slowing economies in Europe and the BRIC's have softened demand for diesel fuel in the near term although that trend will surely reverse itself as the economies around the world begin to pick up again. The US economy appears to be slowly gaining momentum and that should carry over globally at some point in 2015. Refiners continue to export diesel abroad as the spread remains profitable to do so. OPEC's decision in late November to keep supply constant will serve to keep the petroleum pricing complex muted for the next several months. Supply is currently greater than demand by nearly 2 million barrels per day. The recent 30% drop in prices will bring out new demand from these lower prices levels and inhibit some supply. The positive economic impact from lower oil prices will show up in better economic data gloabally over the next few months. That economic pickup will lead to a pickup in fuel demand as well. These metrics indicate that pricing is nearing a bottoming area and hedges should begin to be put in place on some portion of your fuel requirements at this time and and continued into early 2015.
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