Fuel Prices to Remain Volatile Despite Growing U.S. Oil Production
CHICAGO – The second and final day of the NACS State of the Industry Summit (SOI) began today with an overview of the motor fuels market by Tom Kloza, publisher and chief oil analyst for the Oil Price Information Service (OPIS), that was both informative and entertaining.
Kloza, who peppered his presentation with many irreverent jokes and sight gags -- such as a slide showing the state emblem of New Jersey as two mafiosos with baseball bats welcoming someone into the trunk of their car -- predicted that volatility in fuel prices will continue this year, although prices will "be skewed toward the lower extremes than in 2012."
Like the previous day’s SOI speakers, Kloza also forecasted an emerging flood of crude oil production from North America, as sophisticated drilling techniques unleash huge reservoirs of "light, sweet crude" from shale formations in the United States.
"We are going to see much more crude oil production in the coming year," he said, while suggesting that crude oil prices will remain in the range of $90 to $120 during the course of this year.
It is likely the industry will also continue to see wide swings in prices by region, although "they may narrow a little," Kloza said. This volatility, though, will be good for smart marketers with lots of leverage who can take advantage of the price swings by buying low and selling high.
Noting that the Environmental Protection Agency’s Renewable Fuel Standard requires companies to purchase Renewable Identification Numbers (RINs), if they fall short of meeting the government’s standards, he pointed out that "RINs are going to be a really big deal." Right now, refiners are eating the RINs’ cost, "but the costs will shift to marketers and consumers eventually. This is something to watch all year, and particularly in 2014," he added.
The situation, he said, might cause refiners to look to purchase wholesalers or even retailers to cut long-term deals with them.
Overall, Kloza predicted cheaper crude this decade, and again urged attendees to buy in bulk during pricing down-drafts.