Diesel Prices Fell Out Of Bed This Morning While The Rest Of The Energy Complex Continues To Move Higher

Market TalkThursday, Apr 21 2022
Pivotal Week For Price Action

Diesel prices fell out of bed this morning while the rest of the energy complex continues to move higher.  The drop comes despite the fact that US diesel inventories reached a 14 year low last week, and east coast inventories are approaching their lowest levels on record. 

PADD 1 (East Coast) diesel stocks reached a 26 year low last week, and dropped below 25 million barrels for just the 2nd time in the 32+ years that the DOE has published this data. Even more influential for futures prices, PADD 1B, which included the central-Atlantic states that host the NY Harbor trading hub, and helps explain why we’ve seen such dramatic moves in the time spreads for ULSD. 

None of that helps explain why ULSD futures dumped overnight while the rest of the complex stayed in positive territory, but this could just be some profit taking after the May HO contract came within ½ cent of reaching the $4 mark overnight.  Watch the $3.85 level for May ULSD today.  If prices can hold above there, the 14 cent pullback looks like nothing more than consolidation that will eventually give way to another run higher.  If it breaks however, we should see a move towards $3.75 in the next couple of days (or hours given the volatility we know is possible).

East Coast gasoline stocks are also far below normal levels for this time of year, manifested through numerous terminal outages stretching from Florida to New England in the past several weeks, but are not nearly as dramatic on a historical basis as diesel inventories. 

US Crude production saw its 3rd increase in the past 4 weeks as the ramp up in drilling activity is finally starting to show up in the output figures.  Reports suggest that there’s a record amount of permitting going on in the Permian with prices north of $100, and the DOE still predicts the US will reach record output in the coming year, so expect this growth to continue, but probably at a rate that’s much slower than many who want lower prices would like given the lead time needed to bring those wells online.   

US refiners continue to increase run rates despite a handful of unplanned maintenance events in the past week, and many of those that are running hard are enjoying their best margins in a decade or more, particularly if they have access to the global waterborne markets.  Some inland markets are seeing some heavy discounting at the rack level however as local refineries are incented to run as hard as possible, even if it means taking a loss on some of the products that aren’t in high demand right now.

Short term chart note:  Watch the $3.85 level for May ULSD today.  If prices can hold above there, the 14 cent pullback looks like nothing more than consolidation that will eventually give way to another run higher.  If it breaks however, we should see a move towards $3.75 in the next couple of days (or hours given the volatility we know is possible).

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

Market Talk Update 4.21.22

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Pivotal Week For Price Action
Market TalkThursday, Mar 28 2024

Energy Markets Are Ticking Modestly Higher Heading Into The Easter Weekend With Crude Oil Prices Leading The Way Up About $1.25/Barrel Early Thursday Morning

Energy markets are ticking modestly higher heading into the Easter Weekend with crude oil prices leading the way up about $1.25/barrel early Thursday morning, while gasoline prices are up around 2.5 cents and ULSD futures are about a penny.

Today is the last trading day for April HO and RBOB futures, an unusually early expiration due to the month ending on a holiday weekend. None of the pricing agencies will be active tomorrow since the NYMEX and ICE contracts are completely shut, so most rack prices published tonight will carry through Monday.

Gasoline inventories broke from tradition and snapped a 7 week decline as Gulf Coast supplies increased, more than offsetting the declines in PADDs 1, 2 and 5. With gulf coast refiners returning from maintenance and cranking out summer grade gasoline, the race is now officially on to move their excess through the rest of the country before the terminal and retail deadlines in the next two months. While PADD 3 run rates recover, PADD 2 is expected to see rates decline in the coming weeks with 2 Chicago-area refineries scheduled for planned maintenance, just a couple of weeks after BP returned from 7 weeks of unplanned repairs.

Although terminal supplies appear to be ample around the Baltimore area, we have seen linespace values for shipping gasoline on Colonial tick higher in the wake of the tragic bridge collapse as some traders seem to be making a small bet that the lack of supplemental barge resupply may keep inventories tight until the barge traffic can move once again. The only notable threat to refined product supplies is from ethanol barge traffic which will need to be replaced by truck and rail options, but so far that doesn’t seem to be impacting availability at the rack. Colonial did announce that they would delay the closure of its underutilized Baltimore north line segment that was scheduled for April 1 to May 1 out of an “abundance of caution”.

Ethanol inventories reached a 1-year high last week as output continues to hold above the seasonal range as ethanol distillers seem to be betting that expanded use of E15 blends will be enough to offset sluggish gasoline demand. A Bloomberg article this morning also highlights why soybeans are beginning to displace corn in the subsidized food to fuel race.

Flint Hills reported a Tuesday fire at its Corpus Christi West facility Wednesday, although it’s unclear if that event will have a material impact on output after an FCC unit was “stabilized” during the fire. While that facility isn’t connected to Colonial, and thus doesn’t tend to have an impact on USGC spot pricing, it is a key supplier to the San Antonio, Austin and DFW markets, so any downtime may be felt at those racks.

Meanwhile, P66 reported ongoing flaring at its Borger TX refinery due to an unknown cause. That facility narrowly avoided the worst wildfires in state history a few weeks ago but is one of the frequent fliers on the TCEQ program with upsets fairly common in recent years.

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
Pivotal Week For Price Action
Market TalkWednesday, Mar 27 2024

Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

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