US fuel prices go crazy. In Poland, we will feel it too

Aug 31, 2017 3:44 PM|

Just last week, the unleaded petrol prices on the New York Stock Exchange rose by more than 20 percent and reached the highest level for almost 3 years. The European market's trading has been clearly changing, which means that Polish drivers have to prepare for the rise, and it will start next week - writes Marcin Lipka, senior analyst at Conotoxia.

Marcin Lipka, główny analityk

The global oil market and its products are characterized by, i.a. the fact that any demand and supply disruption in leading consumers or manufacturers translates into price fluctuations all over the world. The situation is also related to Hurricane Harvey, which hit the wealthy South American petrochemical infrastructure.

Oil prices down and fuel's up

Looking briefly at oil quotes, it seems that nothing has happened over the past week. US WTI crude oil has fallen by about 3% since last Thursday, which is within the fluctuation range of recent months. Those relatively small changes in this basic energy resource do not, however, explain the huge changes in fuel prices, especially in the case of gasoline.

On August 24, a gallon of unleaded gasoline cost 1.65 USD in the New York Stock Exchange (NYMEX). After a week the course has reached the 2 USD boundary. That meant more than a 20 percent growth and the highest levels since December 2014.

In this situation, the answer to the following question seems interesting - what is the result of such a sharp decline in oil prices? The south-east coast of Texas near Houston and the Louisiana border are all full of refineries. According to the US Energy Information Administration (EIA), about 44 percent (from 17.3 million) of oil processing capacity is located on the coast of the Gulf of Mexico. Bloomberg reports have shown that the shutdowns of US refineries due to Harvey Hurricane exceed 4.4 million barrels a day.

It's not just approx. 25 percent of US oil processing capacity, but also a significant part of the world’s demand for crude oil products, which amounts to less than 100 million barrels a day. 4.4 million barrels are also eightfold of the daily demand for oil processing products in Poland.

Difficulties in obtaining the right amount of fuel and problems with their transport through pipelines have been causing a very strong increase in gasoline prices. In contrast, most of the oil production is not exposed to problems as it is outside the areas controlled by the elements. The stabilization of the oil supply with smaller demand from refineries results in lower raw material prices and higher prices of its products.

Even in Poland we will pay more

The United States is not only a consumer of petrol or diesel but also has a large share in fuel exports. EIA data has shown that the daily net export of crude oil products has amounted approx. 2.2 million barrels in the last four weeks. Now, part of this export is at risk, which causes price increases in other regions of the world.

Expected higher fuel prices in the world are also a result of the problems with supplying fuel to the eastern part of the United States. Probably it will have to be covered by higher imports from other regions of the globe, which also raises general gasoline prices.

On the European market, for 6 days the price for 95 gasoline has risen by less than 9 percent and reached the highest price since August 2015. The change in fuel cost won't omit the Polish market, though, thanks to the relatively low dollar, the records have still been far away. However, on August 31, in the Polish wholesale the price of one litre of unleaded petrol increased by 8 gr per litre compared to the day before. There is a high risk that the rise will continue and next week's popular "95" at petrol stations will be a few cents more expensive than now.

In this series of negative information are also some positives. Weather disturbances usually do not cause long-term increases in energy commodity prices. After a few weeks, US crude oil capacity should return to earlier levels, which would also likely lead to a return of global fuel prices to pre-Harvey hurricanes.


Aug 31, 2017 3:44 PM|

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