The morning of April 8 brought good news – the parties to the conflict in the Middle East agreed to a two-week ceasefire and the resumption of shipping in the Strait of Hormuz.
The futures market for diesel fuel reacted to this news with a significant drop of over 20% compared to the closing price on April 7.
However, this drop in exchange quotes currently has only indicative value and is unlikely to lead to a significant decrease in prices at gas stations today. The fact is that physical market quotes from Platts are recorded daily late in the evening and therefore can only influence local fuel market prices the following day, says Alexey Shvedov, head of strategy at SIA "KOOL Latvija" and AS "OLEREX".
The degree of this influence may vary from seller to seller, depending on the chosen accounting method, pricing formula, and risk management policy.
As of 11:30 AM, the diesel fuel futures bounced back from the reached minimum by more than $100/ton, which translates to over +10 cents per liter.
Unfortunately, it is unknown at what level the Platts quotes will be fixed, and consequently, it is unknown how prices at gas stations will change tomorrow.
How Quickly Can Prices Decrease?
This primarily depends on whether the parties to the conflict will adhere to the terms of the ceasefire over the next two weeks and what will happen after the agreed deadline expires.
The pace of price reduction in the local market depends on the levels at which petroleum products will be traded on the global physical market. For the Baltic states, the price indicator for this trade is the Platts CIF NWE/Basis ARA (Amsterdam-Rotterdam-Antwerp) quotes.
Since this concerns the physical market and transactions with real goods, it will be crucial how quickly the volume of oil and petroleum products, which was expected to flow through the Strait of Hormuz, begins to move towards consumers, as well as how quickly the infrastructure and logistics of the region affected by the conflict can recover.
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