As the fall months approach, here’s what consumers and retailers can expect from the gas, diesel and oil markets.
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Episode Transcript
Jeff Lenard:
Our guest today was on the news this morning talking about some of the big trends related to the oil industry and the fueling industry. Instead of two minutes that they gave him on cable news, we’re going to dive in a little deeper and spend about 20 minutes. So let’s get going and, and welcome our guest, Denton Cinquegrana with OPIS.
Denton Cinquegrana:
Jeff, good to be with on with you again, always a pleasure.
Jeff Lenard:
So this summer, we’ve seen gas prices fall from a record high about the middle of June of over $5, a gallon. It’s dropped more than a dollar. We know that there’s some pressures that that might reverse that, but as we head into the fall, hat are the big issues that you are looking at in the fuels market?
Denton Cinquegrana:
For me, the biggest one right now is diesel. Diesel inventories in the United States are well below where they would normally be at this time. And it’s not just a United States issue. It’s a global issue with diesel right now. Gasoline, as we move into the fall, demand tends to go down, the formulation for gasoline changes, it’s a little bit cheaper to make, et cetera. The focus right now is really on diesel. Gasoline is still obviously very high priced, even though we’ve just recently went below $4 a gallon, we’ll see how long that lasts. But again, I think that the diesel issue is here to stay. And a lot of it has to do with the issues in Europe and natural gas and electricity.
Jeff Lenard:
When you talk about diesel, there may be people out there saying I don’t drive a diesel car. Why should I care? There may be people who say, I don’t sell diesel fuel at my convenience store or gas station. But you should care because it’s all tied together. Can you walk us through why diesel matters?
Denton Cinquegrana:
You’re absolutely right. And that’s the thing that touches the consumer is the fact that everything you buy, whether it’s in a convenience store, whether it’s in a grocery store, whether it’s in a big box retailer, is getting onto those shelves by a truck that was running on diesel. And if diesel prices get too high or as high as they have been, the fleet owners are gongna pass those costs onto the customer, which is the, the, the, the store. And those are being passed onto the end user, whoever is shopping in those stores. So that’s why you’re seeing a lot of prices for food, especially this past summer, and I think that’s going to continue. The bigger issue also is because of natural gas shortages in Europe, because they’ve been cut off from Russia, more sanctions are going into place in early December.
And a lot of countries are looking at using oil and diesel burning infrastructure to produce electricity for the wintertime for heating purposes, et cetera, or just to run facilities. So again, you see a little bit of fuel switching because right now in the United States, natural gas is probably about $8, $9 per BTU. It’s essentially seven to 10 times that in Europe, it’s very expensive and you think our utility bills are going to be high this winter, you should get a look at some of the ones in Europe.
Jeff Lenard:
Wow. So they’re that much higher.
Denton Cinquegrana:
It’s significantly higher. It’s mind numbingly higher. And again, it’s not necessarily an apples to oranges content or a comparison, but because of heat content and BTUs, et cetera, natural gas in Europe is almost the equivalent of $300 of barrel of oil.
Jeff Lenard:
Also as we head towards the fall, diesel fuel demand is different than gasoline demand. Gasoline demand peaks in the summer months and then it tapers off when people go back to work, go back to school. Now, certainly we’re in different times where not as many people are going in the office and demand has been down a little because of that this summer, but diesel fuel demand picks up in the fall related to the harvest, right? Also because diesel fuel is essentially a part of a broader category called distillate, which is home heating oil. And while many areas of the country can’t imagine that they will be turning on the heat, eventually they will be turning on the heat for home heating, and that’s going to put even more pressure on diesel in addition to how it may play out in terms of finding diesel, will refiners have to readjust and will that have an impact ultimately on gasoline prices?
Denton Cinquegrana:
It can. And actually what the market is saying to refiners right now is make as much diesel as you can. And one of the major refiners in their second quarter conference call a couple weeks ago actually said, ‘Hey, we’ve been in max distillate mode for a couple weeks now.’ And they suspect that everyone, all the other refiners are doing the same thing, just because making diesel is more profitable right now. And it typically is anyway, but you can’t go 100% diesel on 0% gasoline. You could tweak it a couple percentage points here and there, but for the most part, it’s more small increments that you could do. You could tweak the refinery and to make perhaps more diesel at the expense of gasoline going into the fall season.
It’s pretty easy to kind of sacrifice gasoline, but again, if we have a spike in demand, refinery issues, and we’re getting into into early fall hurricanes that are anytime from mid-August through early October, we’re entering the danger zone and we’ll watch tropical activity manifest itself in that swath of the country between New Orleans and Corpus Christi, Texas. You never want to see a major hurricane hit, but that’s just the no-go zone. That is something we just really don’t want.
Jeff Lenard:
A lot of people look at shortcuts deals. How is this year compared to other years? And I think the one that they most cite is the year 2008 when gas prices hit a record $4.11 a gallon. They also dropped fairly significantly, much more significantly than this year, actually. And there were talks about a recession. There were talks about things like is this similar to 2008. What can we learn from what happened in 2008, or is there a better example?
Denton Cinquegrana:
Yes and no. It’s like 2008 because obviously we had a record high in prices. There are some major differences though, considering what minimum wage is now versus minimum wage then. A lot more higher percentage of your disposable income was going into paying for a gallon of gasoline versus versus 2022. That also preceded a really bad recession, the great recession,of the financial markets meltdown, the mortgage back security issues. I’m not an investment banker, so you don’t want to get too deep into that, but I did see the movie the ‘Big Short,’ so hopefully we don’t get a situation like that, but I think part of the reason why we’ve seen gasoline prices and oil prices come down over the course of the summer. And this is one of those rare times, I’m not sure we have something to compare to because like you mentioned earlier, we peaked on June 14th.
Every day so far the summer, the price has dropped, which I just find incredible considering we’re in the middle of the summer driving demand. Yes, it’s down versus year ago levels, but still pretty solid, pretty decent demand, obviously well above pandemic levels. To see the gas price drop every single day so far this summer has been pretty interesting. And I don’t know if you could necessarily compare it to other things, but the reason why we’ve been dropping is there’s these real fears of us going into a recession, not just the United States, but the entire world, particularly Europe. You have China with their no COVID policies that would have keep a lid on demand as well. So you have a culmination of things that have come together to drop prices the way they have been over the course of the summer.
Jeff Lenard:
I’ll just take it down down as in a downer notch. You mentioned hurricanes earlier and we’ve been lucky so far, they’ve said that we expect this year to be an above average hurricane season. The challenge is, and you had mentioned the Gulf Coast, there’s about half as many refineries as there were in 1980. So if a refinery goes down, we’re producing more, but there are fewer refineries that are producing. So when one goes down, it has a bigger impact. That is always a concern. How big a concern should that be if we lose a refinery or two for an extended period of time? Should we be really concerned about hurricanes, particularly with fewer refineries?
Denton Cinquegrana:
Yeah, absolutely. There are fewer refineries and we’re doing more with less, basically. I know the argument is we haven’t built a refinery from the ground up since 1976, or somewhere in the late seventies.
Jeff Lenard:
Yep. Ford was president
Denton Cinquegrana:
Exactly. A bunch of small ones popped up, but we’ve added so much capacity to existing refineries that we’ve really added probably about seven or eight kind of world class refineries to the system over the years. With a hurricane, you have enough of a warning to say, okay, this thing we’re in this cone of uncertainty, we could reduce operations. We could take ourselves offline. And once it passes, if there’s no damage we could get up and run in pretty quickly. There’s enough of a warning, unlike an earthquake or a tornado. With a hurricane, at least you have a little bit of an early detection, a bit of a warning saying let’s get ahead of this. Let’s shut it down. And the refinery refinery operators have gotten really good at this.
Jeff Lenard:
We know that gas price has come down, we know they’ve come down for a variety of reasons. It’s partially demand. We’ve increased production because over the last couple months, since Russia’s war in Ukraine, we’ve added capacity. So there are some things that the system always repairs itself. The question is, how long does it take to repair itself? Everybody would always like it to be faster, but that is some good news in all this process that we usually hit equilibrium never as fast as we’d like. Are there other good things out there related to the fueling infrastructure?
Denton Cinquegrana:
To your original point, yes. This is a case of the cure for high prices is high prices. You have motivation to run your refineries as hard as possible. A lot of refining companies have put off maintenance because the margins right now have just been so spectacular. Crude oil producers in West Texas and New Mexico and Colorado in North Dakota – yes there is motivation to bring more production online. So hopefully the returns and stuff like that have them investing for future needs. This is everything we’ve seen so far. The war with Russia and Ukraine was kind of the tipping point, but a lot of this goes back to 2020 from the fact that refiners, producers, and everyone in between were getting hit by this low demand environment, low prices, et cetera.
They had no money to invest for future production. And now you are hoping they’d put some of this away for a rainy day fund and be ready to add some more production when it’s needed. That’s probably a piece of good news. But again, I think as the global population continues to grow, we need an all hands on deck approach. Renewables are great, solar, wind, all these clean ideas and everything. It’s great, but at some point you need everything. Earlier this summer, we crossed 8 billion people on the planet. It takes a lot of energy for 8 billion people to be happy.
The fact that prices are coming down is obviously welcome news. I do think for gasoline retailers and station owners and refiners and producers, I think demand is probably you’ll biased a little bit higher. Now, granted the biggest threat, I think to retailers as far as gasoline demand is concerned, and this is over the next decade, it’s not necessarily electric vehicles, as much as people in the press would want you to think – it’s the efficiency of vehicles. We have the new CAFE standards. That’s going to add up pretty quickly and that’s going to take gasoline demand down over the longer term before electric vehicles really reach critical mass.
Jeff Lenard:
Just increasing car efficiency 10% is going to take a bigger chunk out of demand than as many EVs, because fewer than 1% of the vehicles on the road are EVs right now, but there’s 280 million vehicles roughly that still need fuel and they don’t run on charging.
Denton Cinquegrana:
And it takes a long time for that vehicle fleet to turn over. If I buy a new car tomorrow that’s an internal combustion engine, I’m not replacing that for another 10, 12, possibly even 15 years. When the president is asking producers to produce more oil, you don’t just snap your fingers and more appears. So again, like you were illustrating before these things take time.
Jeff Lenard:
I’ll leave with one final question. I want to end with this because I think everybody in our industry knows OPIS and we know that you report numbers to AAA. We had AAA on earlier this year, and they talked about how people are excited. They set their alarm for midnight to watch the prices. think a lot of people would be interested if you tell us how OPIS gets these numbers. What’s the process?
Denton Cinquegrana:
It goes throughout the supply chain, we watch the futures market. I have a screen going right now where I see what WTI is doing. I see what gasoline is doing. I see what diesel is doing. But then we have a spot market, which is kind of the next level up. This is where physical barrels of gasoline and diesel are traded in seven different spot markets. We have a staff who are collecting those trades and at the end of the day processing them and putting them into reports that we sell to customers. Say, Jeff, you’re selling me a cargo of gasoline and we’re going to have it delivered into the New York Harbor, we’re going to use an OPIS three day average to determine that price.
We’re third party impartial. We have a strict methodology that we follow in regards to that. And then from there you go to that rack market, that big wholesale market that everyone knows and loves, and that’s where OPIS came into existence back in the early eighties in that fuel prices were deregulated and you needed an impartial third party to bring price discovery. And that’s how OPIS was essentially born, by talking to people. The stories I get from from the founders is like ‘Hey, I don’t want you reporting my prices.’ And eventually we were getting them from all their customers. And they said, ‘Well, you know what? You can’t fight city hall. We’re going to give you our prices to make sure you’re not getting the wrong prices.’
With retail stuff, it started with a little bit of information here and then it just snowballed. And now we’re at the point where customers are putting their numbers right in to a direct feed. And that’s why we could aggregate this stuff a lot quicker. For example, we’ll have that AAA number, that’s a point in time, but we have some internal tools where you could see the price is continuing to drop because I’m seeing what the price is doing throughout the day as more and more customers come in, automate their systems and, feed those prices into us because what we have software that also helps them with pricing.
So a station doesn’t have to send a manager out and do a survey in a five mile radius and look at other stations, write things down. This way, you could pump in the prices, you can get all your competitions, you could set your parameters and see everything from there. And it’s an extension of technology that we’ve seen over the years.
Thank you, Denton, for the overview and thank you all for listening today.
Outro:
Convenience Matters is brought to you by NACS and produced in partnership with Human Factor. For more information, visit convenience.org.
About our Guest

Denton Cinquegrana, Chief Oil Analyst, OPIS
For more than a decade, Denton has covered nearly all markets where OPIS has price discovery. Prior to becoming the chief oil analyst at OPIS, he was executive editor for U.S. refined products, overseeing day-to-day market coverage operations.