Charts Continue To Suggest Diesel Is In A Precarious Position

Market TalkFriday, Feb 24 2023
Pivotal Week For Price Action

It’s a mixed bag for energy markets to start Friday’s trading with diesel prices up 2 cents, gasoline down 2 cents and crude oil flat in the early going.

Diesel prices had their lowest settlement Thursday since prior to the war breaking out a year ago, an event that was the major factor in ULSD futures breaking just about every record on the books. The March ULSD contract also came within a penny of hitting its lowest outright value of the past 13 months before once again finding enough of a bid to avoid a technical collapse. Charts continue to suggest diesel is in a precarious position, with a major slide possible if the $2.66 range fails to hold support. If you’re a believer in the trading adage that “There’s no such thing as a triple bottom” on the charts, then a slide into the $2.50s should feel inevitable as we’ve seen lows near $2.66 three times in the past 3 weeks.

Crude oil inventories saw another large build, swelling by more than 7.6 million barrels, despite a surge in export activity that sent more than 32 million barrels of crude out of the country last week. The combined build in crude oil stocks reported over the past two weeks totals nearly 24 million barrels, even though those same reports show strong export growth and stagnant imports. Refinery runs and crude production can’t explain the big inventory gains since both were flat last week, leaving many to wonder how a government report could possibly have such confusing and misleading data. 

Don’t worry, the EIA makes it perfectly clear by reporting a 2 million barrel/day adjustment to US Crude oil supplies in each of the past 2 weeks. 2 million barrels/day X 14 days = 28 million barrels of oil that the agency has in its compiled reports and is saying has no idea how it got there.  

If you’re enjoying the confusing government data theme today, check out the PCE report that shows inflation continues to run hot and has stock markets pulling back yet again since it reinforces the idea that the FED won’t be letting up its tightening any time soon.

Los Angeles diesel basis values dropped 11 cents on Thursday, even though PADD 5 diesel inventories remain well below the 5-year seasonal range and multiple refinery issues continue to limit output in the region. Soft demand was likely the culprit in that large basis slide as 6” of rain and the first blizzard warning in parts of California in more than a decade are certainly not encouraging trucks to be on the road.

Total US Diesel inventories climbed back into their 5-year seasonal range for the first time in a year and moved above prior year levels for the first time since 2021. Diesel demand remains at very low levels for this time of the year, with minimal heating demand getting much of the blame for the worst start to a year for diesel consumption in a decade.

The US exported nearly 6 million barrels of refined products last week, but most of it wasn’t gasoline and diesel. In fact, the charts below show propane and propylene exports were on part with gasoline and diesel, demonstrating the growing importance of HGLs in the global energy mix.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Market Talk Update 02.24.2023

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Pivotal Week For Price Action
Market TalkThursday, Feb 29 2024

It's Another Mixed Start For Energy Futures This Morning After Refined Products Saw Some Heavy Selling Wednesday

It's another mixed start for energy futures this morning after refined products saw some heavy selling Wednesday. Both gasoline and diesel prices dropped 7.5-8.5 cents yesterday despite a rather mundane inventory report. The larger-than-expected build in crude oil inventories (+4.2 million barrels) was the only headline value of note, netting WTI futures a paltry 6-cent per barrel gain on the day.

The energy markets seem to be holding their breath for this morning’s release of the Personal Consumption Expenditures (PCE) data from the Bureau of Economic Analysis (BEA). The price index is the Fed’s preferred inflation monitor and has the potential to impact how the central bank moves forward with interest rates.

Nationwide refinery runs are still below their 5-year average with utilization across all PADDs well below 90%. While PADD 3 production crossed its 5-year average, it’s important to note that measure includes the “Snovid” shutdown of 2021 and throughput is still below the previous two years with utilization at 81%.

We will have to wait until next week to see if the FCC and SRU shutdowns at Flint Hills’ Corpus Christi refinery will have a material impact on the regions refining totals. Detail on the filing can be found on the Texas Commission on Environmental Quality website.

Update: the PCE data shows a decrease in US inflation to 2.4%, increasing the likelihood of a rate cut later this year. Energy futures continue drifting, unfazed.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkWednesday, Feb 28 2024

It’s Red Across The Board For Energy Prices So Far This Morning With The ‘Big Three’ Contracts All Trading Lower To Start The Day

It’s red across the board for energy prices so far this morning with the ‘big three’ contracts (RBOB, HO, WTI) all trading lower to start the day. Headlines are pointing to the rise in crude oil inventories as the reason for this morning’s pullback, but refined product futures are leading the way lower, each trading down 1% so far, while the crude oil benchmark is only down around .3%.

The American Petroleum Institute published their national inventory figures yesterday afternoon, estimating an 8+ million-barrel build in crude oil inventory across the country. Gasoline and diesel stocks are estimated to have dropped by 3.2 and .5 million barrels last week, respectively. The official report from the Department of Energy is due out at its regular time this morning (9:30 CST).

OPEC’n’friends are rumored to be considering extending their voluntary production cuts into Q2 of this year in an effort to buoy market prices. These output reductions, reaching back to late 2022, are aimed at paring back global supply by about 2.2 million barrels per day and maintaining a price floor. On the flip side, knowledge of the suspended-yet-available production capacity and record US output is keeping a lid on prices.

How long can they keep it up? While the cartel’s de facto leader (Saudi Arabia) may be financially robust enough to sustain itself through reduced output indefinitely, that isn’t the case for other member countries. Late last year Angola announced it will be leaving OPEC, freeing itself to produce and market its oil as it wishes. This marks the fourth membership suspension over the past decade (Indonesia 2016, Qatar 2019, Ecuador 2020).

The spot price for Henry Hub natural gas hit a record low, exchanging hands for an average of $1.50 per MMBtu yesterday. A rise in production over the course of 2023 and above average temperatures this winter have pressured the benchmark to a price not seen in its 27-year history, much to Russia’s chagrin.

Click here to download a PDF of today's TACenergy Market Talk.