Planning for Upcoming Energy Needs
August 5, 2019
Written By Tim Danze
As summer begins to wind down, there are a number of things I am closely watching that could sway the direction of the fuel and propane market. I would advise you to consider these factors in preparation for your energy needs for the fall and winter.
Deal or No Deal? – The ongoing trade war between the United States and China could greatly impact global demand for fuel. If the Trump Administration can negotiate a trade deal with China, I would expect bullish optimism for greater economic activity, more shipping and stronger overall demand in the energy sector. However, if the trade war drags on with little to no progress to show, the outlook for the global economy will likely worsen and we could see less demand and downward pressure on energy prices.
Rising Tensions with Iran – Geopolitical anxiety between Iran and world leaders is growing. In July, Iran said it had breached its 2015 nuclear deal with the United States, China, France, Russia, the United Kingdom, Germany and the rest of the European Union. When Iran originally pledged to limit its nuclear program, the aforementioned countries agreed to lift sanctions on Iranian oil exports, which provided a boost to the global oil market. The United States withdrew from the accord last year and re-imposed sanctions on oil and other parts of the Iranian economy. Iran has recently threatened to disrupt oil supplies in the Strait of Hormuz to put pressure on world powers to allow the country to sell its oil abroad. The market is always uneasy with any disruption to supplies, so further escalation of this situation could push prices higher.
OPEC Keeps Cutting Production – The Organization of Petroleum Exporting Countries (OPEC) and other allied major oil producers agreed on July 1 to extend production cuts through March 2020 in an effort to shore up prices. The supply cuts, which are being observed by OPEC’s 14 members, Russia and nine other nonmember nations, were anticipated by the market. The energy alliance was put in place on a temporary basis in January 2017 to put a floor under low oil prices stemming from a supply glut that was created, at least in part, by increased U.S. shale oil output. I believe OPEC’s efforts have been successful in stabilizing prices thanks in large part to Saudi Arabia’s willingness to cut its production below the daily quota of 1.2 million barrels. We shall see how long Saudi Arabia is willing to do OPEC’s heavy lifting.
Preparing for Fall and Winter
While you do not have a crystal ball to see how the global issues will play out and impact the energy markets, you do have the option to protect yourself with full tanks and budgeted, locked-in pricing.
Historically, ultra-low sulfur diesel prices move higher in the fall and peak in late October or early November. Spring flooding has certainly affected agricultural diesel demand in the Midwest and that is likely to continue this fall with so much unplanted acreage. If you expect to buy diesel fuel this fall, early August is a great time to take a look at a fixed-price contract running from September through November. This can provide some protection against any potential price spikes caused by geopolitical or weather-related disruptions. Or, you could simply opt to have your tank filled up at the current price to meet your upcoming needs.
From a propane perspective, this is also a good time to contract your winter propane needs. In seven out of the past 10 years, if you booked your propane through a contract with MFA Oil, you would have come out ahead of the game. Our region should begin the winter season with an adequate supply of propane, but as we all know, there is no predicting how Mother Nature will treat us. Your best bet is to get a head start on winter by contracting your propane now and arranging to have your tank filled before the cold arrives.