Diesel Prices Continue To Try And Lead The Energy Complex Higher This Week
Diesel prices continue to try and lead the energy complex higher this week, as the world continues to have few answers to a shortage of natural gas and distillates, while gasoline and crude oil prices are resisting that pull and moving modestly lower.
Equity markets are pointing to large gains to start the day, setting new highs for the recovery rally since bottoming out last Thursday, but still not breaking the longer term downward trend. The correlation between daily swings in US stock indices and energy contracts has fallen apart in the past couple of weeks, so the rally seems to be having little if any impact on fuel prices so far.
Basis markets around the country remain chaotic as traders deal with supply that swings between famine and feast on a weekly basis, and big swings in calendar spreads on futures that raise the level of difficulty substantially. California continues to be the diva of the cash markets, with LA CARBOB now trading negative, marking a $2.50 drop so far in October. No word yet if regulators will investigate the cause of this price drop. West Coast diesel values meanwhile continue to trade at big negative values ahead of the roll to November physical trading which moves prices to the December futures contract reference point which is nearly 42 cents cheaper.
NY Harbor ULSD continues to disconnect from the rest of the country, with prompt values going for nearly 80 cents more than the neighboring USGC and Chicago markets and more than $1/gallon above those on the West Coast. Delta’s refinery in Monroe PA is reportedly restarting after planned maintenance which should help alleviate the latest short squeeze on East Coast distillates, and those high prices are certainly opening arbitrage windows from several markets around the world, so we will see another price collapse at some point, but it’s hard to say when, or how long this latest dip will last.
New reports are out this morning that the White House will announce more releases from the SPR, with an estimate of 10-15 million barrels, which won’t last long at the current pace of around 1 million barrels/day. That release, if true, would be less than 8 percent of the total already announced for the year, although with nearly half of the reserve already depleted, the strength of this lever to [NOT win elections] combat price increases is decreasing. The same reports also suggest that a decision on limiting fuel exports will wait until after the elections. It’s worth noting the White House already ruled out a ban on natural gas exports, due to its numerous pledges to come to Europe’s aid, so it’s hard to see a ban on distillates, although restrictions on certain types of fuel (like gasoline) or limiting the destination countries could still be in play to try and show they’re trying to combat high gasoline prices without limiting refiners ability to run full out.
Meanwhile, the simplest solution to some of the domestic supply bottlenecks, a widespread waiver on the Jones Act, remains a political non-starter although a waiver for LNG shipments to Puerto Rico was just approved to aid in Hurricane recovery efforts.
Click here to download a PDF of today's TACenergy Market Talk.
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Wholesale Gasoline Prices Across Most Of The US Reached Their Lowest Levels In 2-Years Thursday
Wholesale gasoline prices across most of the US reached their lowest levels in 2-years Thursday, after the morning recovery rally fizzled in the afternoon. RBOB gasoline futures dipped below the $2 mark briefly, before settling just above it, while cash prices in several major markets dropped below $1.80 for the first time since December 2021, while crude oil and diesel prices reached fresh 6-month lows.
The bulls are giving it another go this morning, pushing futures up 5-cents for gasoline and 6- cents for diesel, trying to snap the streak of 6-straight daily losses for ULSD, although we’ll need to see products double their early gains to erase the weekly decline.
Energy prices didn’t react much initially to the November Payroll report that estimated 199,000 jobs were added during the month, while the official unemployment rate dipped to 3.7% from 3.9% and the U-6 rate dropped to 7% from 7.2%. Equity futures moved modestly lower immediately following that report as labor market resilience throws cold water on recent hopes for interest rate cuts, but as has often been the case for several months now, energy prices are managing to shrug off the move in stocks.
Big negative basis values continue to be the theme across the Gulf Coast and Mid-Continent, with USGC, Group 3 and Chicago all trading at 20+ cent discounts to futures for both gasoline and diesel. Those negative values are weighing on refining margins with USGC crack spreads approaching their lowest levels in 2 years, which will almost certainly curtail some refinery run rates through the winter months. East Coast refiners meanwhile are finding themselves in a strong position as shipping bottlenecks keep PADD 1 inventories low and their crack spreads remain in the mid $20/barrel range despite the recent pull back in futures.
The long-awaited Dangote refinery is reportedly receiving its first cargo of crude oil today. That new 650mb/day refinery would be the world’s largest single train refinery, but is already years behind schedule, and many still doubt its ability to run anywhere near capacity. We’ve already seen the impact Kuwait’s 615mb/day Al Zour refinery can have on markets across the Atlantic basin, so whether or not the Nigerian facility can ramp up run rates could have a major influence on product prices next year.
Click here to download a PDF of today's TACenergy Market Talk.
West Coast Gasoline Inventories Dropped Sharply Last Week And Are Now Holding Below Their 5-year Seasonal Range
Energy futures are bouncing this morning as buyers are finally stepping in after RBOB futures touched a 2-year low Wednesday, while WTI and ULSD both hit their lowest levels in 5 months. There are headwinds both fundamentally and technically, but so far, the market isn’t acting like a collapse is imminent and as the table below shows this is right about the time when gasoline prices bottomed out the past two years.
Saudi Arabia and Russia released a joint statement this morning, following Vladimir Putin’s trip to the Kingdom, urging OPEC & friends to join their output cut agreement, which takes the risk of a price war that could send prices plunging (as we’ve seen twice in the past decade) off the table for now and seems to be contributing to WTI climbing back above the $70 mark and Brent getting back above $75.
The DOE reported a healthy bounce back in fuel demand estimates after the annual Thanksgiving holiday hangover, but that wasn’t enough to prevent refined product inventories from continuing to build as refiners continue to return from maintenance and increase run rates. The builds in gasoline inventories particularly suggest it could be a tough winter for some refiners who are already having some challenges clearing their extra barrels.
The exception on gasoline comes in PADD 5. West Coast gasoline inventories dropped sharply last week and are now holding below their 5-year seasonal range, which is dramatically lower than year-ago levels which set the top end of that range. Those tight stocks help explain why West Coast values are the most expensive in the country by a wide margin and leave little cushion to deal with unplanned maintenance which helps explain the jump in CARBOB basis values this week.
On the diesel side of the barrel, the recent themes of tight supplies on the East Coast, ample supply in the Midwest and Gulf Coast, and a Wild Card on the west coast since we don’t see Renewable Diesel inventories in the weekly figures continues. Take a look at the PADD 2 gasoline and diesel charts below and it’s easy to understand why we’re seeing cash prices in both Group 3 and Chicago approaching multi-year lows with 20-30 cent discounts to futures becoming the rule rather than the exception.
The market seemed to shrug off the drop in total US crude oil stocks, as Cushing OK stocks increased for a 7th straight week, and the decline was largely driven by the largest negative adjustment value on record, which went from a positive 1.2 million barrels/day last week to negative 1.4 million barrels/day this week. The EIA has done a lot of work trying to fix the bugs in its report system and to better define what exactly it’s reporting, but clearly there’s still more work to be done.