Diesel more expensive than petrol? This is right up speculators' alley

02.10.2017 09:52|Conotoxia.com

Hurricane Harvey, which disrupted the fuel production process on the American coast, is not the only concern for drivers. A strong increase in demand for diesel on both sides of the Atlantic and speculative positions' records aimed at the growth of this fuel may indicate a clear increase in diesel oil prices, writes Marcin Lipka, Conotoxia Senior Analyst.

Marcin Lipka, główny analityk Cinkciarz.pl

In recent weeks, drivers have been unlucky about events in the global fuel market. The devastating hurricane that hit the south of the United States caused severe disruptions in petrol production and a significant increase in its prices throughout the world. At the end of August, a litre of this popular unleaded fuel, according to the European Commission (EC), cost on average 4.46 PLN in Poland, and in the middle of September, it was already 4.64 PLN.

Capacity recovery by refineries located in Texas and Louisiana allowed for a downward revision of these increases. In the past few days, a litre of petrol in wholesale on the European ARA market was close to the 1.65 PLN boundary, so approx. 10 gr less than at the hurricane summit. Data from the domestic wholesale market also shows that there may be scope for a few cents of "95" price drops at the beginning of October.

The situation of diesel fuel looks totally different. Prices on the ARA market have been increasing almost continuously for a month. Currently, a litre of this fuel costs 1.72 PLN, i.e. 25 gr more than a month ago and 40 gr more than at the end of June. The current diesel quotations suggest that the average fuel price at petrol stations may rise by a dozen or so gr in the following days and remain within the range of 4.55-4.60 PLN, i.e. practically equal to petrol prices. Unfortunately, this is not the end of bad news.

Demand is increasing. Speculators want to make some money

Current increases in diesel prices are becoming less connected with hurricane disturbances and more with the surprisingly fast-growing demand, especially in the US and Europe. According to September's report of the International Energy Agency (IEA), the demand for diesel in the US exceeded the five-year highs of May and June.

The demand for diesel in France and Germany is also growing surprisingly strongly. Compared to June last year, it increased by 10% and 13% respectively. IEA points to the strong demand for diesel fuel in Italy, Poland and Spain, which is mainly related to the improvement of the EU economic situation.

The increase in demand, in turn, results in a very rapid reduction in supplies. According to Bloomberg, in mid-August, supplies exceeded by 10% of the five-year average in Northern Europe and the US, while in Singapore it was 30% higher. In the second half of September, supplies on all aforementioned markets are already below the five-year average.

The increasing demand and faltering diesel production induced the speculative capital to play a game for further appreciation in this fuel. According to CFTC data, the net number of positions betting on the continued upward trend in diesel prices increased by over 11k and reached 62k PLN. These are the highest levels since the data’s publication in 2006.

Winter as a crucial factor for diesel

Apart from observing data on demand and supply, it may also be important to include weather information. If the temperature in autumn and winter does not fall below the long-term average, speculators are likely to start reducing the positions set for diesel price increases, which in turn, should quickly stop price increases at petrol stations.

However, if the weather in Europe and North America was not favourable, the demand for diesel fuel would rise not only due to higher demand in transportation but also due to rising consumption for heating purposes. In that case, diesel may be more expensive than petrol and exceed the expected prices in the coming days, i.e. approx. 4.50-4.60 PLN/litre.

 


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