April Energy Futures Struggle To Finish Strong, Diesel Demand Remains Soft
Energy futures are stumbling to the finish line with just 2 days left in April trading and most contracts hovering around their lowest levels of the month.
US Oil inventories fell for a 4th week out of 5, despite more barrels being taken out of the SPR, and the EIA finding another 8 million barrels of oil in their adjustment figure last week. Refinery runs and oil exports remain strong, and the oil production estimate dipped last week, which all contributed to that draw in stocks.
RBOB futures did see a healthy rebound off of their lows Wednesday after the EIA reported a strong demand estimate that helped pull inventories lower last week. That recovery bounce was short lived however and RBOB prices find themselves teetering on the edge of their weekly trend line once again this morning, and poised to drop below it once the June contract takes the prompt position next week, unless we get a nickel or more bounce in the last two days of trading for the month.
Diesel demand estimates continue to be very soft, consistent with the steady drumbeat of “freight recession” warnings that have been issued in recent weeks. While refiners are likely to report record earnings for a first quarter this week, that soft outlook for diesel, and the recent collapse in crack spreads that’s come with it, have created a much different outlook for the balance of the year.
ULSD prices have dropped to their lowest level since the first day of trading in 2022, with several spot markets reaching their lowest levels since December of 2021, despite the fact that diesel inventories remain at the bottom end of their seasonal range across all 5 PADDs included in the report. The PADD 5 figure is the most misleading however as the EIA figures are not yet capturing the rapid influx of renewable diesel into these figures, so actual commercial diesel inventories will be higher than the official figures.
The EIA’s latest report on Biodiesel and Renewable diesel inventories showed a record high of 7.8 million barrels of combined inventory in the US as of January, but it does not break out biodiesel and RD stocks. It seems inevitable that the EIA will eventually include RD inventories in their weekly figures as they do with ethanol, particularly now that RD is moving along major pipeline systems in California, but that could still be years away given the glacial speed in which government agencies tend to move.
Speaking of which, you may note that PADD 3 refinery utilization rates look abnormally high. You’d be correct in that assessment since the EIA’s data continues to report the actual output generated by Exxon’s new 250mb/day expansion in Beaumont but won’t report that as actual refining capacity which is artificially inflating the percentage utilization.
Side note, did you know there are actually 7 PADDs but the EIA doesn’t include 6 and 7 in its weekly reports? Also, did you know that a US congressperson once worried that one of PADD 7s islands might tip over and capsize? Can’t make that stuff up.
Latest Posts
The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days
Week 15 - US DOE Inventory Recap
Prices To Lease Space On Colonial’s Main Gasoline Line Continue To Rally This Week
Equity Markets Have Been Pulling Back Sharply In Recent Days As Inflation And Trade Concerns Inject A Sense Of Reality Into Stocks
Social Media
News & Views
View AllThe Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days
The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.
The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.
An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.
Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.
In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.
The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.
Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.
Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.
PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.
Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.
Week 15 - US DOE Inventory Recap
Prices To Lease Space On Colonial’s Main Gasoline Line Continue To Rally This Week
Energy markets are sliding lower again to start Wednesday’s trading as demand concerns and weaker stock markets around the world seem to be outweighing any supply concerns for the time being.
Rumors continue to swirl about an “imminent” response by Israel to Iran’s attacks, but so far, no news seems to be taken as good news in the hopes that further escalation can be avoided, even as tensions near the Red Sea and Strait of Hormuz continue to simmer.
Prices to lease space on Colonial’s main gasoline line continue to rally this week, trading north of 11 cents/gallon as Gulf Coast producers still struggle to find outlets for their production, despite a healthy export market. Gulf Coast CBOB is trading at discounts of around 34 cents to futures, while Gulf Coast RBOB is trading around a 16-cent discount, which gives shippers room to pay up for the linespace and still deliver into the East Coast markets at a profit.
Back to reality, or just the start of more volatility? California CARBOB basis values have dropped back to “only” 40 cent premiums to RBOB futures this week, as multiple flaring events at California refineries don’t appear to have impacted supply. The state has been an island for fuel supplies for many years as its boutique grades prevent imports from neighboring states, and now add the conversion of the P66 Rodeo refinery to renewable diesel production and the pending changes to try and cap refinery profits, and it’s easier to understand why these markets are increasingly vulnerable to supply shocks and price spikes on gasoline.
RIN prices continue to fall this week, touching 44 cents/RIN for D4 and D6 values Tuesday, their lowest level in 6 weeks and just about a nickel above a 4-year low. While the sharp drop in RIN and LCFS values has caused several biodiesel and Renewable Diesel producers to either shut down or limit production, the growth in RIN generation continues thanks to projects like the Rodeo refinery conversion, making the supply in RINs still outpace the demand set by the Renewable Fuel Standard by a wide margin.
The API reported draws in refined products, 2.5 million barrels for gasoline and 427,000 barrels for distillates, while crude oil stocks had an estimated build of more than 4 million barrels. The DOE’s weekly report is due out at its normal time this morning.
Click here to download a PDF of today's TACenergy Market Talk.