Diesel Prices Fell Out Of Bed This Morning While The Rest Of The Energy Complex Continues To Move Higher
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).
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Week 48 - US DOE Inventory Recap
The API Reported Gasoline Inventories Dropped By 898,000 Barrels Last Week
Gasoline and oil prices are attempting to rally for a 2nd straight day, a day ahead of the delayed OPEC meeting, while diesel prices are slipping back into the red following Tuesday’s strong showing.
The API reported gasoline inventories dropped by 898,000 barrels last week, crude inventories declined by 817,000 barrels while distillates saw an increase of 2.8 million barrels. Those inventory stats help explain the early increases for RBOB and WTI while ULSD is trading lower. The DOE’s weekly report is due out at its normal time this morning.
A severe storm on the Black Sea is disrupting roughly 2% of the world’s daily oil output and is getting some credit for the bounce in futures, although early reports suggest that this will be a short-lived event.
Chevron reported that its Richmond CA refinery was back online after a power outage Monday night. San Francisco spot diesel basis values rallied more than a dime Tuesday after a big drop on Monday following the news of that refinery being knocked offline.
Just a few days after Scotland’s only refinery announced it would close in 2025, Exxon touted its newest refinery expansion project in the UK Tuesday, with a video detailing how it was ramping up diesel production to reduce imports and possibly allow for SAF production down the road at its Fawley facility.
Ethanol prices continue to slump this week, reaching a 2-year low despite the bounce in gasoline prices as corn values dropped to a 3-year low, and the White House appears to be delaying efforts to shift to E15 in an election year.
Click here to download a PDF of today's TACenergy Market Talk.
Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
Click here to download a PDF of today's TACenergy Market Talk.