Powerhouse has chronicled an oil market trading in a price range through the summer now drawing to a close. Ironically, the factors that have created a vibrant and volatile futures market for ULSD and gasoline remain in place. These include supply/demand balances, refinery utilization, persistent geopolitical instability in North Africa and the Middle East (MENA), and dramatic changes in climate. They are becoming more insistent over time.

 

One important geopolitical element is the announced conclusion of the 20-year war in Afghanistan and the withdrawal of U.S. forces, civilians and allies. The departure has been disorderly, leading to more deaths. Nonetheless, oil prices have not reacted in any significant way.  Afghanistan itself is not an important oil producer.

The regional balance of power could be affected when the United States departs Afghanistan. While the US retains the ability to project military power ‘over-the-horizon’, the withdrawal of on the ground forces in the region may open the door to uncertainty in larger strategic political relationships including those among the oil-rich nations in the region.

Oil demand in the U.S. remains a focus of the markets.  The most recent report from the EIA showed gasoline demand rising to 9.57 million barrels per day with gasoline sales expected to be even stronger during the upcoming Labor Day holiday weekend.  Gasoline inventories have now fallen below the five-year average for this time of year.