Another Day, Another 40 Cent Swing In Diesel Prices As The Parabolic Move Higher In Energy Prices Continues

Market TalkTuesday, Mar 8 2022
Pivotal Week For Price Action

Another day, another 40 cent swing in diesel prices as the parabolic move higher in energy prices continues. ULSD prices reached a new record high this morning at $4.3437. Prior to yesterday, the record was almost 20 cents lower. Prior to March, the most severe 12 month backwardation in HO futures for a 12 month span was just under 50 cents/gallon. Today, prices 12 months forward are more than a $1.10/gallon cheaper than prompt values.

The rest of the energy complex are having huge weeks on their own, but are failing to keep pace with the runaway diesel prices. RBOB futures set a record high Sunday night, and although they’re up 16 cents on the day, they’re still 16 cents below that high trade of $3.89. Similarly, WTI is up $6/barrel today but remains more than $5 below yesterday’s high trade of $130/barrel. 

After another night of big price swings, it looked like perhaps futures were calming down for the day with RBOB “only” up a nickel and ULSD only up 13 cents on the day, then news broke that the US president would ban Russian oil exports and another big rally was on.  Perhaps later this morning people will realize that Russian oil was already effectively banned a week ago when companies stopped buying it voluntarily and prices will cool off, but then again, it’s another reminder that there is no short term replacement globally for Russian crude, and that we could still see prices move much higher as a result.  

While pain at the pump is real as retail gasoline prices will smash all-time highs this week, the impact of diesel prices on the economy should not be overlooked. This $1.50 increase in diesel prices in 2 weeks is going to create huge cost increases for commercial and industrial users, which will trickle down into the cost of good and transportation. Worst of all, for airlines just climbing out of the COVID hole, that may not have had a hedging program in place – or had a program priced on crude instead of distillates - a spike in prices like this could end in bankruptcy.   

Start thinking of the trickle down impact of those soaring diesel prices and it’s easy to see why the stock market hates this price spike so much, and why the end of this spike may be caused by a collapse in demand.  

Speaking of lower diesel demand, the White House announced new plans and funding to reduce emissions from trucks and buses in the US by handing out money to convert to electric or hydrogen powered vehicles. The timing couldn’t be better as anyone who didn’t hedge their diesel spend this year will be looking for options.    

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Market Talk Update 3.8.22

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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Pivotal Week For Price Action