The Missing Story Of A Year That Smashed Pretty Much Every Record In the Books

Energy prices are limping to the finish line of the wildest year on record. If you only look at the ending prices, you would probably wonder what all the fuss is about. WTI is only up 4% on the year, while Brent and RBOB futures are up a pedestrian 7%. Of course, that misses the story of a year that smashed pretty much every record in the books.

An average trading day in 2022 saw gasoline price move more than 13 cents/gallon, while distillates swung by an average of almost 19, which is nearly 4 times their long-term average range. We had multiple times throughout the year where futures and/or cash markets moved by more than $1/gallon throughout a single session. That extreme volatility, combined with increasing margin rates from the exchanges, and higher interest rates, led to many traders being forced out of these markets or choosing to sit on the sidelines for the rest of the year (or longer) since they couldn’t handle those swings, which pushed open interest for these contracts to a 6 year low.

So, what’s ahead in 2023?  It’s hard to imagine the world will face another shock like the largest war in Europe since WW2, or a global pandemic, so there’s a strong chance we’ll have less volatility. The war in Ukraine, COVID, and interest rate policy all look like they’ll remain major themes that can influence prices. There’s a large amount of new refining capacity that has either come online in the past few months or is scheduled to in the next year which should also help calm refined product markets. The challenge for the US and Europe is that 90% of new capacity is coming from Asia and the Middle East.

Short term it looks like the US dodged another supply bullet as the damage from the Christmas Blizzard - that impacted just about every single refinery east of the Rockies - looks to be limited. Even though several plants will need another week or two to complete repairs, and at least one refinery will be offline for months, the larger complexes along the gulf coast – which accounts for roughly half of all US capacity – seem to have escaped with relatively minor damage. 

If you haven’t already been bombarded with notices, here’s a reminder the Federal Superfund tax is being reinstated in 2023 and will start showing up as a line item on your invoices. Please note the tax only applies to the petroleum portion of the fuel, so any ethanol, biodiesel, or renewable diesel should not have that fee apply. In addition, if you’re in the state of Washington, the new clean fuel programs start Sunday, which are estimated to add approximately 50 cents/gallon to refined product prices, with most suppliers embedding this in their daily prices.

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