Diesel Prices Are Once Again Trying To Lead The Energy Complex In A Rally After 2 Days Of Heavy Selling
Diesel prices are once again trying to lead the energy complex in a rally after 2 days of heavy selling for gasoline and oil prices as both fuel supplies and inflation continue to move somewhere between bad and worse. The big news that appears to have sparked a 25 cent bounce in distillates the past couple of days was that Ukraine was cutting off nearly 1/3 of Russian natural gas shipments, at least in part because Russia is lobbing bombs at the facilities pumping that fuel.
While equity and Energy prices were seeing strong gains in the overnight session, they’ve pulled back sharply this morning following the April CPI reading that showed inflation is holding near a 40 year high, and will give the FED plenty of reasons to hike rates and stop printing money. If you’re looking for good news, you might say that April’s inflation reading of 8.3% for the year wasn’t as bad as the 8.5% estimate in March. Then again, if you read through the release and realized that it was a drop in retail gasoline prices that accounted for a big part of that decline, you can already guess how May’s numbers will look now that gasoline prices have surged to new all-time highs.
The EIA’s monthly report reduced estimates for global crude oil and fuel production, noting the extreme levels of uncertainty caused the war and fuel embargoes. The report did however suggest that global inventories will be able to build in the back half of the year as new supply sources return from their COVID-induced shutdowns.
A Reuters article this morning highlights the steep discounts that Russian diesel cargoes are trading for as most European nations that are desperate for distillates still refuse to take those supplies. Meanwhile, the premium for prompt barrels in NY Harbor is several times larger than the premium paid for non-Russian diesel in Europe, which suggests enough of the Russian barrels are still making it through the EU loophole while the US is struggling through the tightest supply ever on the East Coast.
Based on the pullback in prices in all US markets outside of the East Coast, it seems like just a matter before we see a collapse in values of $1/more in the NY Harbor, but so far this week we are seeing the opposite as premiums surge to $1.40 over futures even while most other US markets have shifted to discounts.
The API reported small inventory builds across the board in its weekly report yesterday, which offers little relief to markets around the country that have seen terminal outages become commonplace. The DOE’s weekly report is due out at its normal time this morning.
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View AllThe Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.
The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.
We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.
The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.
Click here to download a PDF of today's TACenergy Market Talk.
Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.
There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.
As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.
Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.