By Glen Sokolis
Fleet fueling prices are going up. We see it everyday at the pump. We feel it in our wallets. But what exactly is driving diesel and gasoline prices higher? It’s simple. The way this fleet fueling professional sees it, it’s all because of a four-letter word: Fear.
“Fear tends to manifest itself much more quickly than greed, so volatile markets tend to be on the downside. In up markets, volatility tends to gradually decline,” said Philip Roth, American Novelist. Looking ahead, many people are afraid that fuel prices will continue to increase. While its difficult to predict exactly where prices are headed, I’m going to go against the norm and say that fuel prices will go down.
Faced with an uncertain future, we can look to current and past trends for a glimpse of what may happen. Americans have been bullish on fuel since the middle of last year. There is always a demand for fleet fuel, but Americans are already backing off their fuel purchases. In the past, experts have reported that when gas hits $4 a gallon, average Americans tend to change their buying habits. New statistics show that even at $3 a gallon people are driving less. So with current prices averaging about $3.50 a gallon, people are continuing to scale back their time behind the wheel. Less driving and fewer purchases at the pump leads to an increase in the domestic surplus – Keep in mind that the summer driving season is on its way and that means gas prices usually go up. Additionally, the amount of money being traded in the futures markets is about half of what it was a couple of weeks ago. This tells me that a lot of buyers looking for a quick upswing have enjoyed their upswing and are now getting out.
I’m not alone in the ‘fear factor’ theory. There is a view that the crude oil market has $10 to $30 built into it based on fear and speculation. With what we have in front of us now, I see crude oil going under $100 by the middle of April and down to the mid $90s by May. This will drive down diesel fuel prices and gas prices. By the middle of the July when the summer driving season is already over from the refining and distribution perspective, I think prices could drop into the upper $80s a barrel. This could bring prices back to $3.30 a gallon for diesel fuel and $3 a gallon for gasoline in most parts of the country.
Inventory numbers released on Wednesday by the Department of Energy show a build up in crude oil again and gains in diesel fuel while gas inventories went down slightly, but almost 1.9 million barrels less than expected. China’s tightening of its monetary policy to try to curb inflation is another sign of fuel demand possibly going down.
Among traders, speculators and investors, no one wants to be on the short side if unrest continues in the Middle East. But I say, the Middle East is the Middle East. We’ve got fuel inventory, supply is not a problem. So stop worrying and get back to reality, prices will go down. Don’t be afraid!
They won’t stay down forever of course. In the real world, demand will pick up and supply at this point will have a hard time keeping up. But we are still six months away from that.
Glen Sokolis is president of Sokolis Group, a nationwide fuel management and fuel consulting company, www.FuelManagementSokolisGroup.com. You can reach him at firstname.lastname@example.org or (267) 482-6160.
Recent installments of “Friday Fuel:”
â€¢ “Outsourcing Fuel Management,” 2/25/2011
* “Five W’s for Fleet Fuel Buying,” 2/18/2011
* “Happy New Year, Diesel Fuel Prices!” 12/30/2010.
* “Why Diesel Fuel Prices Need Increased Taxes,” 12/3/2010
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