Demand Fears Are Hammering Energy Prices This Week
Demand fears are hammering energy prices this week, with gasoline futures reaching a 7 month low, while distillates have dropped nearly 30 cents so far this week. Today is the last trading day for the September RBOB and ULSD contracts, so watch the October futures (RBV and HOV) for direction if your markets haven’t already rolled to the new reference months.
Tomorrow, the prompt RBOB contract will be a winter spec, which is trading around $2.45 this morning, some 15 cents cheaper than the expiring summer grade contract, and will be the lowest price since January 25th. Gulf Coast cash markets have already started trading winter-spec gasoline grades, and are trading below $2.30/gallon this morning, which could mean some retailers in the south may be posting prices below $3 this weekend if prices hold.
China’s new lockdowns, on top of reports that their factory activity was already slowing down are both contributing to the bearish sentiment this week, as is the sense that Europe is already in a recession, and things may only get worse as consumers struggle just to heat their homes.
OPEC’s technical committee reported a larger surplus in oil supplies than previous forecasts, and highlighted the risks to oil demand caused by inflation and the tighter monetary policy attempting to combat it. While that outlook gives the cartel an excuse to announce production cuts at their meeting next Monday, reporters in Russia are claiming the OPEC & Friends group is not yet putting that option on the table. Of course, Monday just happens to be a holiday in the US & Canada, and spot markets won’t be assessed but futures will be open, meaning we could see some wild price swings that will keep rack prices moving even while most are trying to soak up their last few moments of summer.
The API reported a draw in gasoline inventories of 3.4 million barrels last week, and a decline of 1.7 million barrels for distillates. Crude oil stocks were up just under 600,000 barrels on the week, which is not too impressive given that we’re still seeing SPR releases of nearly 7 million barrels each week. The DOE’s weekly report is due out at its normal time this morning.
The storm that will probably be named Danielle in the next few days should move north and not make a direct hit on the US. The other storm moving off the African coast will have to be watched for a few days, but isn’t given high odds of becoming a US threat either, while a 3rd system in the north Atlantic is too far out to sea to be a threat.
Click here to download a PDF of today's TACenergy Market Talk.
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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.