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Diesel, Oil and Interest Rates

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Some startling numbers emerged from the all-important Department of Energy’s Weekly Petroleum Status Report Wednesday. Oil inventories rose sharply by 5.42 million barrels this week thanks in part to the big release of the U.S. Strategic Petroleum Reserve last week. Meanwhile, diesel stocks plummeted nearly 5.7 million barrels ranking as the biggest drop in six years and despite refineries processing the greatest amount of oil in any given week since 2008.

Talk of the FED raising interest rates this December, and perhaps 3 more times in 2018, combined with revelations by the EIA (Energy Information Administration) that the low-price climate is seeing an upsurge in global demand for oil, sets the stage for oil to lead the pack in terms of rising commodity prices. Despite governments targeting fuel efficiency, foreign crude imports and air pollution, the gains in curbing oil consumption among OECD countries over the past dozen years may soon be reversed, especially when the global market remains relatively oversupplied. Furthermore, the early prospects of OPEC/NOPEC extending their member oil production cut quotas and the drawdown of South Africa’s Saldhana Bay oil reserve – considered one of the world’s largest – keeps oil afloat until the end of 2017 and into 2018.

Diesel demand and supply which is seen by some as a barometer of world economic activity, especially as we approach harvest season and colder temperatures in the northern hemisphere, appears to be gaining renewed attention. It wasn’t all that long ago that the fuel the moves the world was seen as oversupplied and unlikely to emerge from its low valuations any time soon. However global demand, refinery turnarounds delayed in light of recent hurricane disturbances and a reviving global economy have pushed diesel back to its best prices since July 3, 2015.

While some believe the downgrading in China’s credit rating may be bearish for oil and petroleum products in general, perspective suggests that it’s weakened currency could have the unforeseen outcome of encouraging, and therefore increasing, its export trade with oil demand going for the ride.

2018 is shaping up to be a more expensive year for everyone on the gasoline and diesel fronts.

Senior Petroleum Analyst, Canada

Dan is a skilled and noted bilingual (French and English) consumer advocate specializing in energy and current affairs. Known as Canada's “Gas Guru,” he founded tomorrowsgaspricetoday.com to better help motorists anticipate the price of gasoline in advance across Canada. He has over three decades of experience in the petroleum industry, as a parliamentarian and an analyst.

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