At Slattery Energy we constantly monitor all energy markets, speak with traders and suppliers on a regular basis and in doing so we feel these are three important points to consider when contemplating your 2022/23 oil budget.
1. Credit & Staying Power: At the time of sending this letter, there has been some outright price relief from the summer highs on both crude and refined oil products; however, there are several likely scenarios that can quickly reverse this trend. The downward price action has been more related to lack of demand (some artificial with fears of Chinese COVID lockdowns and some economic downturn related with consumer spending slowed due to high prices/overall inflation). Even with reduced demand, supply side factors remain extremely tight with current Northeast PADD inventories at the lowest levels seen in 30 years. And so, while inventories are at 50% of normal levels heading into the winter, the Northeast has seen major refineries shut down in the last 5 years and will be unable to rely on foreign supplemental cargoes as easily into NYH (bans of Russian distillate and increased competition with Europe (who due to Natural Gas shortages from Russia may be forced to rely on fuel and coal more for power production). These market fundamental realities (particularly in a cold winter scenario) can quickly reverse trends and send prices materially higher at a time as well when interest rates are being incrementally hiked. This is why it is imperative to align yourself with a well-capitalized dealer/supplier who will remain solvent and ready to accommodate your business in all potential market conditions.
2. Reliability & Assets: For much of the same reasons previously mentioned which can send the financial and physical fuel market prices higher- the reality is there can simply put be a physical fuel shortage in the Northeast. With inventories low, resupply fiercely competitive, steep financial backwardation curves in place, and local transportation assets limited and at a premium because they are in greater demand in new markets with less cargoes of fuel moving-physical supply reliability will be at a premium this coming season. This is why it is imperative to align yourself with a dealer/supplier who possess its own storage and transportation (marine/truck) assets so they can provide some insulation under their control to these harsh conditions.
3. Experience & Longevity: The key to conquering challenging environments is to be prepared and knowledgeable and rely upon experience. While many of these issues in play this season are evolving and new, there are a plethora of strategies and ways to mitigate price/supply risks. This is why it is imperative to align yourself with a dealer/supplier who possess an experienced teams and has demonstrated market longevity in a number of situations so they can offer that stability and guidance downstream to you.
This coming season presents a unique challenge for all participants in the fuel industry from refiners to traders, to end user buyers. And while there is a possibility that more bearish scenarios unfold, the smart consumer will look at the risks in front of them and understand the potential upside risk is far greater than any in recent times. And with these in mind, heed the above three principals when choosing who to align with this coming season above all (even including price to a large degree).