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Old 10-27-2015, 09:14 PM   #1
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Cheaper diesel fuel ahead?

From CNBC today:

Crude oil prices fell 2 percent Tuesday to their lowest level since late August as concerns over supply and demand continued to weigh on the market. Oil is now down 16 percent from its Oct. 9 high, and one expert warns the commodity could hit sub-$40 levels sooner than later.

"I think we're going to continue to go lower and hit $40 and then [retest the August low]," Andy Lipow said Tuesday on CNBC's "Futures Now."

Read More US crude settles down 78 cents at 2-month low of $43.20
For the president of Lipow Oil Associates, the crude oil market will remain under severe pressure as diesel fuel floods it "With the Chinese economy slowing down and less money being spent on construction, China is exporting more diesel fuel," he said. "Those supplies combined with the robust exports of diesel from Saudi Arabia and the U.S. have produced a glut of diesel fuel and jet fuel," Lipow added. "This is just bad news for the energy complex."

As a result of that oversupply, Lipow expects refiners around the world to decrease demand, which should cause further weakness in the physical oil market.

Read MoreNew way to bet on oil wipes out billions in investor savings

"With OPEC doing nothing to reduce production and the impending return of Iranian oil to the market in 2016, prices will make another run at $40 pretty quickly," he said. "I think that the worst period for crude oil will be in 1Q 2016 when refineries in the USA undergo a significant maintenance period and crude oil demand is once again reduced."

Lipow expects crude oil to continue to fall as low as $35 a barrel in the coming months. That's 18 percent lower from its current price of around $43. To note, a decline that severe would put the commodity at its lowest level since 2009.
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Old 10-27-2015, 09:21 PM   #2
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As a result of that oversupply, Lipow expects refiners around the world to decrease demand, which should cause further weakness in the physical oil market.
Well, refiners don't "decrease demand", they decrease supply
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Old 10-27-2015, 09:48 PM   #3
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I'm all for lower costs but I never expect much. The old economics 101 stated - prices are inelastic in a downward mode! So while they are a bit lower now the mfgrs will eventually get their pound of our flesh. I just hope they wait a year since we are planning an Alaska trip next summer.
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Old 10-27-2015, 09:55 PM   #4
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Well, refiners don't "decrease demand", they decrease supply
Yup. It always amazing that there is usually a refinery fire or they get shut down for "maintenance".
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Old 10-27-2015, 11:48 PM   #5
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Cheaper diesel fuel ahead?

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Well, refiners don't "decrease demand", they decrease supply

He is stating the demand from refiners (the amount of oil that refiners will need) will decrease, which will cause the spot market price for unrefined oil to decrease.
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Old 10-27-2015, 11:51 PM   #6
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Cheaper diesel fuel ahead?

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Well, refiners don't "decrease demand", they decrease supply

Not necessarily so. Crude is to a great extent a worldwide open commodity, and when Exxon has a million-ton tanker coming out of the Gulf, they sell it where the market will be best. Sometimes that is their own refinery, but sometimes not. And refineries often buy crude on the open market, too. So if they decide to stop diesel production for a month because there's already a glut, that will lower demand for crude.


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Old 10-28-2015, 12:56 AM   #7
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....and with Jet Fuel prices dropping like a stone, we should see a huge reduction in airfares ???. Funny how that never happens !
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Old 10-28-2015, 07:08 AM   #8
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Yep, I'm crying a river for the revenue the energy market is losing. That aside, it a interesting coincidence that energy price are low as the next election approaches.....
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Old 10-28-2015, 07:38 AM   #9
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Yep, I'm crying a river for the revenue the energy market is losing. That aside, it a interesting coincidence that energy price are low as the next election approaches.....
It's a mixed bag of news. The reduced oil prices are having a negative impact on many in the oil industry and while I'm loath to be a big fan of oil, it isn't good to see it suffer too much.

The flip side is the impact it has on alternative energy R&D. We seem to have no memory of bad times during the good times.

It is a old, specious argument that politicians (usually assumed the President) has any real influence on gas prices over any long haul. Sure, they can effect some very short term changes by how they manage strategic reserves but those often have more of a political feel than real change. Keep in mind that we are a full year away from the elections and no political scheme can control world wide market demands for that long and looking at how long oil prices have been depressed, that rubber band could snap back well ahead of elections.

OPEC's current plan, that has been running for quite some time, has been flood the market. Why? In an attempt to exert geo-political control of the oil market. If they can bust or seriously damage competitors both in the oil industry and alternative fuels sector, they can again be the big boy on the block.

The bottom line is enjoy fuel prices now...in a couple years it could be the "good ole' days", especially if the US global economies starts spinning faster. Demand will increase and so will prices.
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Old 10-28-2015, 09:08 AM   #10
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Good balanced post, SkyBoss. I agree.

An interesting byproduct of the Iranian deal is their Oil coming back on the market during a glut. Some might call that buying down the Oil prices, but I'm not that paranoid.
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Old 10-28-2015, 09:45 AM   #11
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Good balanced post, SkyBoss. I agree.



An interesting byproduct of the Iranian deal is their Oil coming back on the market during a glut. Some might call that buying down the Oil prices, but I'm not that paranoid.

Our current crop of policy wonks would really prefer fuel prices up closer to European levels ($10/gal) than lower. The world energy market is way beyond the ability of the political class to affect pricing in more than a superficial way.


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Old 10-28-2015, 11:37 AM   #12
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Our current crop of policy wonks would really prefer fuel prices up closer to European levels ($10/gal) than lower. The world energy market is way beyond the ability of the political class to affect pricing in more than a superficial way.


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Can't disagree with that either.

However, supply and demand do not account for price movements always. Many of the price movements in recent decades are a reflection of speculation rather than pure supply and demand. While there have been some efforts to curb speculation they have largely been futile. Last time there were real shortages was in the '70's. So perception often drives cost rather than realistic values based on fundamentals.

That all said, while it's less now it will eventually be more….. i'm pretty sure of that.
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Old 10-28-2015, 03:36 PM   #13
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I gave up on economics when I retired but I do KNOW I just paid the lowest I have paid in 20 years for #2 at 2.01 in Muscogee Ok 50 Gal for just over a 100.00 bill.

I find it for 1.99 in odum texas hope it stays there till next week when I go thru.
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Old 10-28-2015, 05:16 PM   #14
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In an article about the recent budget deal, it mentioned that there would be a sell-off of some petroleum from the Strategic Reserve to bring some cash into the government’s account to help balance things out. More oil on the market, eh?

Around here, diesel prices have not come down nearly as much as gasoline. Diesel is currently selling for $2.69/gal. and regular gas is at $2.09, a 60-cent difference.

We’re heading south in a few weeks and we have a full tank to start and won’t be buying fuel until we’re in a lower-fuel-tax state.

Wayne
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