Choppy Energy Futures Amid Technical Crossroads
The choppy action continues in energy markets as RBOB and WTI reached fresh multi-month highs Wednesday, only to be met with modest selling again overnight.
WTI has rallied right into its 200-day moving average before pulling back. If that resistance breaks, there’s not much on the charts to prevent a run at $90, but if it holds, there’s a good chance we see a move to fill the gap left by the surprise OPEC announcement two weeks ago, which would target $76.
For RBOB, the charts continue to suggest we’re on a path towards $3, even though we’re moving lower this morning after prices got close to $2.90 Wednesday. Short term indicators have moved into overbought territory for RBOB, so a pullback is not surprising and may set the stage for the next phase of the spring rally. Total US Gasoline inventories are holding well below their seasonal range, with PADDs 1 and 2 accounting for all of the shortage, while PADDs 3-5 are all holding near average levels for this time of year. The EIA estimated a decline in gasoline demand last week, which snapped a 4 week stretch of gains. The total gasoline demand estimate remains above last year’s levels and the 5-year average over the past month as lower prices seem to be helping consumers.
ULSD remains stuck in its relatively narrow range between $2.60 and $2.80 that has held values for nearly a month. Compare that to last April 13 when prices moved 33 cents in just 1 day. Diesel stocks remain at the bottom end of their seasonal range in all regions except the West Coast which is seeing inventories swell thanks both to the influx of new renewable diesel supply in the region and the brutal weather that’s curtailed demand for most of the year so far. LA did see a strong recovery in basis values yesterday, following reports that waterborne barrels are being sent away from the state due to the weak values.
Note the large drop in the EIA’s crude oil adjustment factor in the charts below, which coincided with a large drop in the total petroleum demand estimate. While both gasoline and diesel did see a drop in their estimated consumption, the remainder is what the agency has now admitted is just a guess due to the lack of clarity on condensates and other liquids in the crude oil stream.
Refinery runs held relatively steady last week, although we did see a big tick up in PADD 1 runs as plants returned from maintenance, while PADD 2 saw a decrease as a couple of facilities just started their spring turnarounds. Group 3 diesel prices have surged north of 20 cents/gallon this week, which could be related to the drop in refinery runs in the region.
Some new refinery capacity did show up in this week’s report, with PADD 2 adding 9mb/day and PADD 3 adding 49mb/day. The PADD 3 figures suggest that Valero’s new coker has been included in the numbers, but Exxon’s 250mb/day Beaumont expansion still isn’t listed, even though it’s been operating for more than a month.
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View AllWeek 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.
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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.