Diesel Prices Are Falling For A 4th Straight Day

Market TalkThursday, Feb 15 2024
Pivotal Week For Price Action

Diesel prices are falling for a 4th straight day and have wiped out 2/3s of the 30 cent gains made during last week’s 5 for 5 price rally, as the EIA and IEA reports both threw cold water on the bulls plans for a spring rally. RBOB gasoline futures were dropping for a 2nd day, giving up 12 cents in less than 24 hours, but were attempting a come-back to trade near breakeven for the day around 8am.

Adding to the bearish sentiment this week are reports that the huge new Dangote refinery, which is the main wild card for Atlantic Basin refining capacity this year is offering its first export cargoes. If you read closer however, you’ll note that the exports are for unfinished products, suggesting that the downstream units needed to produce finished gasoline and diesel aren’t yet up and running.

Consistent with the pattern for most of the past year, the IEA took a much more bearish tone than OPEC in its monthly oil market outlook, noting that global demand growth is losing momentum. The IEA’s report highlighted the impact of the January freeze event on oil and refining operations but predicted that we’ll see refinery runs in the US bottom out in the next week or two before accelerating into spring. Both reports are consistent in their supply growth estimates however, with global oil output expected to set a new record this year, with the US, Canada, Guyana and Brazil leading the way, and keeping a cap on the call for OPEC’s supply, while the shipping disruptions in the Panama and Suez canals will help keep prices backwardated.

Notes from the DOE’s weekly report:

Crude oil inventories had a large build as expected last week with 450mb/day of refinery production from BP’s Chicago-area refinery shutdown, and a positive reversal of the crude oil correction factor both driving the big increases. 

The price reaction following the report was decidedly bearish with both RBOB and ULSD losing roughly a dime following the report, which estimated that US fuel demand dropped sharply last week.  Of course, the government estimates on consumption are notoriously fickle, so the reaction could be more a sign that the bulls weren’t ready to carry through with the breakout threat they made last week.

Gasoline stocks in PADD 2 had reached an 8 year high prior to the Whiting downtime, which helps explain why prices aren’t having a bigger reaction to the extended shutdown of the region’s largest refinery. Those inventories are drawing rapidly now but remain in-line with the seasonal trend of inventories peaking in February, then declining sharply as we move through the spring RVP transition.

The situation is even more bearish for Midwestern diesel inventories which continue to hold at the top end of their seasonal range and roughly 15% above year-ago levels despite that refinery downtime, which is why we’re seeing cash markets in the Group and Chicago still hovering around 20 cent discounts despite a 500mb/day decline in PADD 2 run rates last week. The export market for diesel is looking sluggish as well, with outbound movements slumping below the 5-year average, despite reports that the Red Sea disruptions would drive more demand for products to move from the US Gulf Coast to Europe. 

One sliver of hope for diesel bulls is that the official demand estimate is understated by around 4-5% nationwide due to the EIA not recognizing RD in the weekly reports, but that reality also makes the PADD 5 diesel inventory chart below look awfully bearish when you realize that there’s more than 4 million barrels of diesel inventory not being recognized.

PBF reported a loss for Q4 this morning, underachieving most other refiners during the quarter. The company tried to sound upbeat in the report, noting that strong earnings earlier in the year had allowed them to shore up their balance sheet. Most noteworthy on the margin front was that the Toledo facility operated at a negative gross margin of $1/barrel during the quarter, detailing just how brutal those big negative basis values really can be for refiners, while their East Coast and Gulf Coast facilities operated at less than $5/barrel of gross margin, which wasn’t enough to cover operating costs. The company’s renewable diesel JV also produced below expectations, but that was blamed on a catalyst change rather than the softer margins given the collapse in RIN values last year.  

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

Market Talk Update 02.15.2024

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Pivotal Week For Price Action
Market TalkFriday, Apr 19 2024

Gasoline Futures Are Leading The Way Lower This Morning

It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.

Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.

A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.

Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.

Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 18 2024

The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days

The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.

The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.

An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.

Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.

In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.

The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.

Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.

Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.

PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.

Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.

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