Crude Oil And Gasoline Prices Attempt To Regain Balance After Tuesday's Wipeout
Gasoline and crude oil prices are trying to find their footing after Tuesday’s wipe out led to more modest selling on Wednesday, while diesel prices continue to languish just a few cents above their lows for the year. Yesterday’s DOE report did little to assuage the fears of recession that have been gripping markets this week with a big slide in demand estimates and inventories that are healing much faster than most predicted this year.
The DOE’s estimate for diesel demand plummeted to the lowest level of the year last week, dropping far below its seasonal 5-year range. Gasoline also saw a decline in its demand estimate, dropping from a healthy top of range figure last week to below the 5-year average last week. While a single week’s data point from the DOE can be misleading, particularly the “implied demand” figures which are simply an estimate based on the remainders left behind from the other reported figures from suppliers, there is no doubt that the demand trend for 2023 is troubling for suppliers thus far.
Refinery runs ticked modestly lower for a 4th straight week, but the changes are very small and amount to not much more than rounding errors. The increased capacity at Exxon’s newly expanded Beaumont facilities are still not showing up in the numbers, despite reports that the new units are online, which suggests we could see a large increase in refinery runs in the coming weeks. It’s also interesting that PADD 4 refinery runs dropped noticeably last week, despite the fact that Suncor is restarting its commerce city facilities after a 2-month shutdown.
Gasoline and diesel exports both saw healthy increases last week but remain in their seasonal ranges and not pushing record highs like they did for much of last year when the world started scrambling to replace Russian supplies. The EIA’s This week in Petroleum note highlighted the record setting exports of refined products from the US last year and detailed how Propane and HGL’s are taking more share of those product flows.
That report also shows that US retail prices for diesel dropped below year-ago levels last week, as pump prices finally caught up to the plunge in wholesale values this year and we’re now comparing prices to last year’s chaotic events that were smashing records for volatility and daily price swings.
US Crude oil inventories did see their first weekly decline of the year, even though refinery runs and exports both declined. Oil production did see a small decline, but the main driver was a huge drop of 2.6 million barrels/day in the “adjustment” factor on inventories for the week.
French pension strikes continue to limit fuel output at several refineries, while some other facilities report they’ve still been able to operate this week. The lack of reaction from fuel prices compared to what we saw last fall is another example of how supplies have healed in the past 6 months, and how reactions to events can differ greatly depending on the trend in place at the time.
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View AllRefined Products Are Moving Lower For A 2nd Day After Coming Under Heavy Selling Pressure In Wednesday’s Session
Refined products are moving lower for a 2nd day after coming under heavy selling pressure in Wednesday’s session. Rapidly increasing refinery runs and sluggish diesel demand both seemed to weigh heavily on product prices, while crude oil is still benefitting from the disruption of exports from Iraq. Prices remain range-bound, so expect more choppy back and forth action in the weeks ahead.
US oil inventories saw a large decline last week, despite another 13-million barrels of oil being found in the weekly adjustment figure, as imports dropped to a 2-year low, and refinery runs cranked up in most regions as many facilities return from spring maintenance.
The refining utilization percentage jumped to its highest level of the year but remains overstated since the new 250,000 barrels/day of output from Exxon’s Beaumont facility still isn’t being counted in the official capacity figures. If you’re shocked that the government report could have such a glaring omission, then you haven’t been paying attention to the Crude Adjustment figure this year, and the artificially inflated petroleum demand estimates that have come with it.
Speaking of which, we’re now just a couple of months away from WTI Midland crude oil being included in the Dated Brent index, and given the uncertainty in the US over what should be classified as oil vs condensate, expect some confusion once those barrels start being included in the international benchmark as well.
Diesel demand continues to hover near the lowest levels we’ve seen for the first quarter in the past 20+ years, dropping sharply again last week after 2 straight weeks of increases had some markets hoping that the worst was behind us. Now that we’re moving out of the heating season, we’ll soon get more clarity on how on road and industrial demand is holding up on its own in the weekly figures that have been heavily influenced by the winter that wasn’t across large parts of the country.
Speaking of which, the EIA offered another mea culpa of sorts Wednesday by comparing its October Winter Fuels outlook to the current reality, which shows a huge reduction in heating demand vs expectations just 6-months ago.
It’s not just domestic consumption of diesel that’s under pressure, exports have fallen below their 5-year average as buyers in South America are buying more Russian barrels, and European nations are getting more from new facilities in the Middle East.
Take a look at the spike in PADD 5 gasoline imports last week to get a feel for how the region may soon be forced to adjust to rapidly increasing refining capacity in Asia, while domestic facilities come under pressure.
Crude Oil Prices Are Trying To Lead Another Rally In Energy Futures This Morning
Crude oil prices are trying to lead another rally in energy futures this morning, while ULSD prices are resisting the pull higher. Stocks are pointed higher in the early going as no news is seen as good news in the banking crisis.
WTI prices have rallied by $10/barrel in the past 7 trading days, even with a $5 pullback last Thursday and Friday. The recovery puts WTI back in the top half of its March trading range but there’s still another $7 to go before the highs of the month are threatened.
Yesterday’s API report seems to be aiding the continued strength in crude, with a 6 million barrel inventory decline estimated by the industry group last week. That report also showed a decline of 5.9 million barrels of gasoline which is consistent with the spring pattern of drawdowns as we move through the RVP transition, while distillates saw a build of 550k barrels. The DOE’s weekly report is due out at its normal time this morning.
Diesel prices seems to be reacting both to the small build in inventories – which is yet another data point of the weak demand so far this year for distillates – and on the back of crumbling natural gas prices that settled at their lowest levels in 2.5 years yesterday and fell below $2/million BTU this morning.
While diesel futures are soft, rack markets across the Southwestern US remain unusually tight, with spreads vs spot markets approaching $1/gallon in several cases as local refiners go through maintenance and pipeline capacity for resupply remains limited. The tightest supply in the region however remains the Phoenix CBG boutique gasoline grade which is going for $1.20/gallon over spots as several of the few refineries that can make that product are having to perform maintenance at the same time.
French refinery strikes continue for a 4th week and are estimated to be keeping close to 1 million barrels/day of fuel production offline, which is roughly 90% of French capacity and almost 1% of total global capacity. That disruption is having numerous ripple effects on crude oil markets in the Atlantic basin, while the impact on refined product supplies and prices remains much more contained than it was when this happened just 5 months ago.
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