That amount of fuel floating has declined to 43 million barrels, and we will probably see that number erode even more as in recent weeks freight rates have risen and the spread in the price gap between storing it at sea and selling it at a later date has become even greater to speculate. This fleet fuel sitting on a tanker ship waiting for the price to rise has been another energy speculation that has been going on for a while but several groups feel that this market is drying up. Even though the International Energy Agency expects a 1.8 percent growth in fuel demand in 2010, supply is still plentiful and spare capacity in oil producing countries remains high.
When oil on the spot market traded at a big discount to forward-dated contracts, this caused energy speculators to take part in this fuel floating feast. In the futures market this is known as "contango." Traders took advantage of that by buying crude or any type of fuel and putting it into storage on tanker ships to sell at a higher price at a future date. Risky, yes, but that is why they call it speculation. Now with the U.S. demand for diesel fuel and heating oil down almost 8 percent in January from a year earlier, there seems to be too much risk on betting on fleet fuel prices rising on floating tankers. This winter has been very cold throughout the largest heating oil consuming area of the country, the Northeast. Transportation has not shown any real signs of getting back especially in historical low freight months like January and February.
The Energy Information Administration is predicting in its latest reports that crude is going to come back and average $81 a barrel. We have heard others forecast oil prices rising, as they expect fundamentals to improve through 2010 and view declining inventories as the catalyst that will lift prices to $95 a barrel by year-end. This could certainly happen if we can get our economy to start to grow at a little quicker rate than what it is currently doing. Yes, we always have China to push demand, which I am sure they will, but the U.S. demand can't be going down if oil prices are going to rise.
As I said in another article in early 2009, what kings want kings usually get. Does anyone remember that crude oil was around $40 a barrel at the time? King Abodullah of Saudi Arabia said the "fair price" for crude oil should be $70 to $80 a barrel. Since June 2009, the King has basically gotten what the king wanted. I don't know if we should expect that to change much until greed kicks in.
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.
Previous installments of "Friday Fuel:"
* "Successful Fuel Management Program Equals Discipline", 9-11-09
* "Who's Watching Your Fuel Program," 9-18-09
* "Fleet Fuel Margins: Are You Paying Too Much?" 9-25-09
* "How Do You Audit Your Fleet Fuel Invoices?" 10-2-09
* "Fleet Fuel Price Negotiating: Details, Details", 10-9-09
* "Mobile On-Site Fueling", 10-16-09
* "The Bees Are Still Buzzing: Handling Fuel on a Daily Basis", 10-23-09
* "Fleet Fuel Card Shopping", 10-30-09
* "Is Your Fuel Management Ready for Winter?", 11-6-09
* "Don't Let the Weather Freeze Your Deliveries", 11-13-09
* "Fuel Management or Fuel Inventory? That is the Question", 11-20-09
* "Put Your Fleet Fueling Policy in Place For 2010, Part I", 12-4-09
* "Put Your Fleet Fueling Policy in Place For 2010, Part II", 12-11-09
* "Be Safe, Not Sorry With Fuel Management During the Holidays", 12-18-09
* "Looking Back: 2009 Fuel Management in Review", 12-23-2009
* "Oil's Ups and Downs", 1-8-2010
* "Why Oil Does What It Does When It Comes to Prices", 1-15-2010
* "Controlling Fuel Efficiency When Fuel Prices Are Unpredictable", 1-22-2010
* "The Motivation Behind Mobile Fleet Fueling", 1-29-2010
* "Fleet Fuel Prices: What are They Now?", 2-5-2010