Bad News For Diesel Fans

WTI prices have traded in a range of less than two dollars/barrel for the past seven trading sessions, as volatility and interest in energy contracts have dwindled after several months when four to five dollar daily swings were the norm. So far in today’s trading session, that high-low range is just 38 cents/barrel, setting a new bar for apathy. Equity markets have seen a similar but less dramatic drop in volatility in recent weeks.
Bad news for diesel fans: The DOE’s weekly report showed inventories reached a new 30+ year high as estimated U.S. consumption was off 20 percent last week. While sharp drops in diesel demand are common following holidays, this report data was compiled prior to July 4, which suggests the numbers could get even worse next week. Gasoline demand saw another slow but steady gain in its weekly demand – disappointing some anticipating a pre-holiday surge – but remain roughly 15 percent below where it would normally be this time of year.
Although it’s well known that the government estimates on a weekly basis are unreliable – which is why many analysts rely on a four week rolling average – it’s easy to understand why gasoline demand is recovering faster, as personal vehicles that drive its consumption are the socially distant mode of transport compared to the diesel-driven buses, trains and other commercial vehicles, not to mention the lack of demand from drilling rigs. Adding to that negative sentiment for diesel, with air travel remaining at extreme lows, refiners are forced to blend more diesel that would normally go to jet production, adding to the glut on that side of the barrel.
There looks to be a silver lining in the court-ordered shutdown of the Dakota access pipeline for some U.S. refiners. Plants on the East Coast that had built out crude-by-rail infrastructure when pipeline capacity was scarce five to ten years ago should now benefit as the DAPL barrels need to find a new way to market. There seems to be plenty of rail capacity given an overhang of rail cars in recent years, and those buyers should enjoy deeper discounts. On the other hand, plants on the eastern half of PADD 2 are getting squeezed in multiple directions as they were already dealing with the Enbridge Line 5 shutdown.
Total U.S. refinery runs increased for an eighth straight week, with the Gulf and West Coasts leading the move higher. With refined product inventories holding near record highs, and exports still not quite strong enough to balance the supply/demand equation, we may see run rates plateau in the next few weeks if reopening plans continue to stall.
Click here to download a PDF of today's TACenergy Market Talk.
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Week 48 - US DOE Inventory Recap
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Week 48 - US DOE Inventory Recap

The API Reported Gasoline Inventories Dropped By 898,000 Barrels Last Week
Gasoline and oil prices are attempting to rally for a 2nd straight day, a day ahead of the delayed OPEC meeting, while diesel prices are slipping back into the red following Tuesday’s strong showing.
The API reported gasoline inventories dropped by 898,000 barrels last week, crude inventories declined by 817,000 barrels while distillates saw an increase of 2.8 million barrels. Those inventory stats help explain the early increases for RBOB and WTI while ULSD is trading lower. The DOE’s weekly report is due out at its normal time this morning.
A severe storm on the Black Sea is disrupting roughly 2% of the world’s daily oil output and is getting some credit for the bounce in futures, although early reports suggest that this will be a short-lived event.
Chevron reported that its Richmond CA refinery was back online after a power outage Monday night. San Francisco spot diesel basis values rallied more than a dime Tuesday after a big drop on Monday following the news of that refinery being knocked offline.
Just a few days after Scotland’s only refinery announced it would close in 2025, Exxon touted its newest refinery expansion project in the UK Tuesday, with a video detailing how it was ramping up diesel production to reduce imports and possibly allow for SAF production down the road at its Fawley facility.
Ethanol prices continue to slump this week, reaching a 2-year low despite the bounce in gasoline prices as corn values dropped to a 3-year low, and the White House appears to be delaying efforts to shift to E15 in an election year.
Click here to download a PDF of today's TACenergy Market Talk.

Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
Click here to download a PDF of today's TACenergy Market Talk.