Cold Water Thrown On Petroleum Price Rally
The DOE’s weekly inventory report threw cold water on the petroleum price rally Wednesday, knocking prices backward after they’d reached multi-year highs earlier that morning. Huge drops in demand estimates created large builds in refined product inventories, and suggested that the reopening rally may be outkicking its coverage. Then again, despite the pullback, the upward sloping trend lines have not yet been threatened, and prices have resumed their push higher already this morning, so it’s too soon to say the bulls have lost control.
Gasoline demand estimates dropped sharply last week, falling almost to the same level we saw a year ago when the country was just beginning to talk about reopening. The bulls can easily write off this drop as a temporary holiday hangover as drivers filled up ahead of Memorial Day (or may still be using up that gasoline in their Rubbermaid containers after the Colonial shutdown) and there are signs on the ground that retail demand has been healthy to start June. Diesel saw a second straight week of large demand declines, in what is typically one of its weakest times of the year.
U.S. refinery runs jumped to 15.9 million barrels/day last week, the highest level since COVID started shutting down the country in March of last year. That is still more than one million barrels/day less than we would normally see this time of year when refiners typically start approaching maximum run rates to meet the peak summer demand. On a percentage basis, refineries are operating at 91% of capacity, compared to normal levels around 94% this time of year. Then again, we saw nearly 5% of the country’s capacity taken permanently offline in the past year, so there’s nearly 40 million gallons/day of production that isn’t coming back, making that % comparison less meaningful, and leaving the system more vulnerable to disruption.
Speaking of which, the DOE this morning took a look at the surge in refined product imports this March, following the rash of refinery shutdowns in the U.S. caused by February’s polar plunge.
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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.