Diesel Prices Are Trying To Lead The Energy Complex Higher This Morning

Market TalkThursday, Sep 29 2022
Pivotal Week For Price Action

Diesel prices are trying to lead the energy complex higher this morning, having rallied 35 cents in the past 3 days. Gasoline and oil prices seem to be unwilling participants in diesel’s attempted rally however, following stock markets back into the red after a big rally Wednesday.

Besides the sabotage of the Nord Stream pipelines, refinery closures from maintenance and strikes across Europe are also adding a bullish factor for distillate prices this week.  It’s worth noting that the COVID impact on refineries is still coming into play, as facilities that put off projects 2 years ago when they were struggling to survive now have no choice but to catch back up in order to keep those facilities operating. 

Speaking of delayed maintenance: Valero is reportedly delaying maintenance at its Memphis TN refinery to (presumably) have more supply to send north on its river system that supplies much of the Ohio river valley during a period of unusually tight supply caused by other refinery outages. Meanwhile, most workers at the Husky refinery in Toledo were laid off this week, in another sign that that facility won’t be coming back online anytime soon after the deadly fire last week. Note the big drop in PADD 2 refinery runs, and the low PADD 2 inventory levels to see why suppliers are continuing to scramble in that market.

Speaking of which, gasoline prices in California are now higher than they were during the summer peak, as futures rallied and basis values held at the record-setting $2.45/gallon premium to RBOB Wednesday. Take a look at the PADD 5 inventories which touched a fresh 10-year low last week.  

While gasoline supplies are extremely tight, renewable energy supplies must be building rapidly as the LCFS credits that were the big reward for producers who can bring those products to California have plunged to a fresh 8 year low below $70/credit this week. Those credits are now worth less than half of what they were at the start of the year, and will provide a disappointing return to so many who raced to ramp up production (in several cases by shutting down their crude oil refineries) over the past 3 years. 

Renewable diesel has led the surge in production, but that product is not yet tracked on a weekly basis like traditional diesel or even ethanol is, so it’s hard to say where actual inventories are. On the other hand, it’s clear that traditional diesel stocks are pretty low as they have rallied sharply this week, with prompt values trading near a 50 cent premium to futures, and creating another scary forward curve for shippers still trying to recover from the backwardation extremes seen earlier in the year. 

Hurricane Ian continues to batter Florida after making landfall as a category 4 storm yesterday.  Damage assessments around the port of Tampa should start today, and the early indications from the Ft. Lauderdale area are that those facilities escaped major damage which will aid resupply as the storm passes. The revised path takes the storm further out to sea east of Jacksonville, which “should” keep those terminals from staying out of operation for long, and there’s a chance that this huge storm may have just threaded the needle crossing the entire state without making a direct hit on any of the major fuel ports. There’s another tropical depression that could get named in the next couple of days, but the projected path keeps it far out to sea and not a risk to land.

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

Market Talk Update 09.29.2022

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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