Energy Market Factors to Watch
November 15, 2024
Written By Tim Danze
The global energy market is facing myriad concerns that could influence prices in various directions. Some of these issues have been ongoing, while others have emerged recently, all contributing to the uncertainty about where energy markets are headed.
Key Factors Impacting Energy Markets
1. U.S. Economy Questions: Adjustments to job creation figures from April 2023 to March 2024 have been significant, shifting downward by 818,000. Additionally, there is concern about a potential U.S. recession, though interest rate cuts by the Federal Reserve in September and November offer some relief.
2. Libyan Crude Production Shutdown: The ongoing internal conflict in Libya threatens the production of around 1.7 million barrels per day of crude oil.
3. Weaker Economic Conditions in China: China is experiencing a sharp decline in housing prices, reduced industrial output, a drop in export and investment activity, and rising unemployment.
4. Trump’s Election: Donald Trump’s return to the White House gives him the chance to fulfill the “drill, baby, drill” and “repeal, baby, repeal” promises he espoused on the campaign trail—but the president-elect’s plans to boost the industry could be coming too late, as some industry experts say global oil demand may have already started to peak.
5. Geopolitical Tensions: Fighting continues in the Middle East, including Hezbollah’s drone and missile attacks on Israel and Israel’s subsequent airstrikes. Houthi rebels attacking shipping vessels off Yemen add to regional instability. The ongoing fighting between Russia and Ukraine also continues to impact global markets.
6. OPEC+ Production Cuts: OPEC+ has cut production by 5.8 million barrels per day to support prices, with a plan to return 2.2 million barrels to the market starting in October. However, this decision has been delayed by two months, and market analysts suggest OPEC+ may need to do more to manage supply.
Market Outlook and Considerations
Various factors influence markets, and the markets’ behavior becomes even more complex as the global economy grows more interconnected. Given the array of issues at play, energy markets can move up or down quickly. My recommendation is to know the pricing levels that work for you and your business.
Identifying a number that works for your fuel budget—no matter the market conditions—is a solid strategy. While everyone wants to buy low and sell high, this goal can sometimes lead to missed opportunities due to the fear of missing out. As of mid-September, a forward fixed-price contract for ULSD BOSS Diesel for March 2025 through October 2025 prices out at what I would say is a good value. It is worth your time to check with your local plant to see what a contract for that timeframe looks like or ask about a contract that more closely fits your needs. Contract prices are always moving with the markets and subject to change, but the current cost is reasonable for hedging against future increases on some portion of your needs, and any further correction lower would only enhance the chance to protect future gallons from a price increase.
Price Trends and Future Outlook
Current sentiment is negative, driven by economic concerns and decreased global demand. This has led to lower diesel prices and expectations of high energy inventories in 2025. Recent price movements have been substantial: ULSD futures are down $1.4065 per gallon from their September 2023 highs, while WTI crude oil is down $27.86 per barrel. RBOB futures also saw a decline of $1.1138 per gallon from their peak. Despite the current negative outlook, the size of these corrections could present buying opportunities. Markets tend to revert to the mean over time, so there may be potential for value-seeking buyers to drive prices higher.
Bullish Factors to Watch
Bullish factors that could influence prices positively:
- The Department of Energy refilling the Strategic Petroleum Reserve
- Potential refinery outages during hurricane season
- Ongoing Iranian sanctions
- OPEC+ maintaining production cuts
- China’s slow economic recovery
Give some thought to the pricing level that makes sense for your situation. The current sell-off and lower prices might offer good long-term value.