Crude Oil Prices Drop Below $70: What is the Outlook for Consumers at the Pump and Farmers Heading Into Spring Planting?
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Crude oil futures are trading at their lowest levels since December 2021. Last week, oil prices broke $70 and fell 10%...the worst weekly decline since April of 2020.
Oil prices are also off their highs of last year of $103.21 on May 6 and have broken over $35 per barrel. Gas and diesel prices are also sliding at the pump but will that trend continue ahead of planting? Energy experts are hoping the answer is yes.
The pullback has been as a result of the banking crisis and macroeconomic concerns that have spilled over into the equity markets. However, energy experts also say global production has increased and is now exceeding demand as Russia has been able to keep production fairly high. U.S. oil production has also rebounded post COVID. So, stocks have been building by about a million barrels per day which could continue until third or fourth quarter. That’s good news for consumers at the pump.
John Wenzel, Senior Risk Manager for StoneX Financial, Inc. says, "For right now it actually looks quite favorable. U.S. gasoline production is high and prices continue to be soft. Underneath it when you look at the dynamics for refiners it's still quite profitable so they’re running full steam."
Diesel fuel prices have also corrected from record highs at a national average of $4.25 last week. And Wenzel says the shortage last fall has been solved through increased refining capacity. Wenzel says, “We’ve seen in the U.S. Exxon mobile put on 250,000 barrels per day of new capacity primarily diesel in its Beaumont facility and globally there's several other refinery projects that will come on line for quite a bit of capacity. There's 3 million barrels per day of new oil refinery capacity globally and that's substantial.” He says refinery capacity will exceed global demand by nearly a million barrels. So, they expect diesel fuel prices to be less volatile this spring as a result.
So, Wenzel says they expect diesel fuel prices to be less volatile as a result, which is good news for farmers and truckers and will help lower transportation costs which will also trickle down to consumers.
With the lower diesel fuel prices, farmers can get some inventory bought if they need it. However, he says there’s no rush to buy until the banking crisis gets ironed out and we see what the Fed response is.
