Trading in refined fuels can be challenging. In addition to trying to read the tea leaves of upstream production, agility is called for when attempting to determine where a particular product will be in demand, so you can execute trades that will yield profit.
For the biggest clue to upcoming demand trends, look at upstream data first: if majors are investing, that’s a leading indicator — and a significant one at that. Exploration and extraction of crude are exorbitantly expensive. From taking the chance that a location will yield oil to securing land rights, followed by rig, transportation, tax, and labor costs, no company even considers expanding production if they don’t think there’ll be demand for the refined products for years to come. Thus, it’s generally a good sign for traders active in energy markets.
But what about the refined products markets, specifically? Where can traders look for accurate, timely data that indicate increasing or decreasing demand?
Weekly reports are too slow
The weekly reports from the U.S. Energy Information Administration (EIA) are widely considered the industry standard, and for a good reason: that data has been tracked and reported by the federal government since World War II. It’s reliable and accurate. However, the petroleum industry — and refined fuels markets, in particular — have changed so much since then as to be almost unrecognizable by comparison. Weekly reports were fine for the mid-20th century trader, but in a globally-connected, 24/7 world, a lot can happen in seven days.
In today’s globally-connected, 24/7 world, a lot can happen in seven days.
The cost of waiting
For instance, look at Hurricane Ian’s impact on the refined fuels markets. A strong Category 4 storm, Ian prompted mandatory evacuation orders by state and local governments, and the demand data shows the evacuation path. Here’s where the data gets interesting.
Ian hit on September 28, 2022, and started its north/northeast journey through Florida. As you can see on the graphic, it went across the major population centers of Clearwater-St. Petersburg and Orlando between September 29-30. To where did the evacuees flee? Jacksonville. How do we know this? Look at this chart matching Ian’s path with data from DTN Refined Fuels Demand.
How Hurricane Ian’s path impacted local fuel demand.
Specifically, look at the regular unleaded column in Jacksonville. The Tuesday one week prior to landfall was a modest 2.5m gallon replenishment order. But the replenishment for the Tuesday just before Ian’s landfall is almost a one-million-gallon increase. By the next Tuesday, October 4, the replenishment order was back down to 2.1m gallons.
Get ahead of the market
This tells an obvious story: gas demand follows evacuation orders. But if you’re a trader hedging on contracts based on a weekly demand report, you wouldn’t have seen the huge spike in demand because the data wouldn’t hit your desk until after the fact. By then, it’d be too late to look for profit opportunities. But with day-by-day demand data, you can predict where there could be opportunities, eliminating decision dead zones where you’re basically blind for a week. Profitable futures trades move where the market is going, not where it was.
Multiple opportunities for product movement
The National Oceanographic and Atmospheric Administration (NOAA) defines the Atlantic hurricane season as running from June 1 to November 30. However, due to climate change, we’re seeing hurricanes in May or earlier and more late-season storms. As Earth gets hotter, the hurricane season gets longer.
“The length of the hurricane season increases by about 40 days per degree Celsius of warming (the season starts about 20 days earlier and lasts about 20 days longer, on average),” according to NOAA scientist Jim Kossin.
This is important for refined fuels traders because it means hurricanes are no longer a rare, force majeure event where investors simply throw up their hands and chalk up a one-time loss. With longer hurricane seasons with more storms — and more severe storms, it’s time to start paying attention.
Remain calm but agile in the storm
Is there a way to prepare and plan for such occasions? Indeed, there is. Forbes has a science-based prediction for the 2023 hurricane season. But weather data that is separate from your trading information source is not of much use. Sure, it’s possible to check forecasts online or on mass media, like radio or television, but those usually aren’t good for more than a few days out; a week at most. In addition, typical forecasts like rain versus sunshine don’t rise to a level deserving an energy trader’s attention. Even heavy, sustained rain rarely moves the needle enough to cause a change in strategy. Instead, accurate weather information that would actually change your investment posture is something you need to see in the moment, without delay or inaccuracy.
Actionable, operational intelligence
Energy traders using both DTN ProphetX® and Refined Fuels Demand from DTN have a complete product demand picture, so they can anticipate where the market is going and make confident, timely decisions. These tools can help determine where to invest in a thirsty market vs. where to shed excess inventory at a profit.
And since refined fuels data is delivered daily, there’s no need to wait a week to make a decision. No need to guess where demand might be headed. The next time a hurricane approaches, you can be ready to make those fast-moving decisions.
Why should you trust DTN for this data? We handle over 85% of all refined fuels transactions in the United States. DTN data is not self-reported; it’s collected automatically, as the transactions occur. While your competition decides their moves on days-old data, you’ll already be positioned for success.