Brent hits five-month high as crude tops $110 on attacks on ships and Saudi sites
Crude topped $110 a barrel as traders weighed Middle East supply risk, and Brent pushed to a five-month high after attacks on ships and Saudi sites raised worry about barrels coming off the market. For jobbers, that is the number that sets your rack cost tomorrow morning. Every dollar on the barrel is roughly two and a half cents a gallon, and this run came fast.
Rack cost
This move comes from supply fear. Attacks on shipping and on Saudi facilities are the stated drivers, so the market is pricing the risk that crude gets harder to move. Gasoline demand is not what is pushing it. For a marketer, the mechanics are simple. Terminal rack prices track the screen, and when Brent runs the unbranded racks move first while branded contracts lag by a few cents depending on your supply agreement.
If you are carrying inventory, this week rewards you. A marketer buying to cover committed gallons at a fixed street price saw margin thin out overnight. The spread between what you locked and what the rack now asks is where you lose money, and you may not see it until the invoice arrives.
Trucking feels it
Fuel is now the number one concern for truck drivers and number two for carriers, according to the American Transportation Research Institute's annual survey. That issue did not crack the top 10 in either of the prior two years. A jump from unranked to the top spot in one cycle shows how fast the pump caught up with the crude run.
For haulers and for the c-store side that sells diesel, that shift matters. Drivers watching fuel costs means pressure on fuel surcharges and slower freight. It also means customers shopping harder for every cent at the diesel island. More volume could move to the cheapest rack in the market, and loyalty to branded pumps may thin when the spread widens.
Marketer exposure
Dr Thomas Ogungbangbe of CITA Energies warned at the company's 20th anniversary that unstable jet fuel pricing threatens supplier viability, and that marketers without real risk management face structural operating losses. His market is Nigeria, so the specifics do not touch your rack, but the exposure he describes is the same here. Any marketer buying a volatile product on thin margin and selling on fixed terms carries that exposure, and a week like this one is when an unhedged book turns into a loss.
What to watch
Whether the shipping and Saudi site attacks keep up, because that is what is holding the risk premium in crude. If the supply scare eases, Brent could give back some of this five-month high and racks could soften. Watch diesel surcharges as carriers react to the ATRI shift. Keep an eye on your branded-to-unbranded spread as the rack moves settle out.