Diesel Prices Fell Out Of Bed Wednesday Dropping More Than 20 Cents At One Point To A 5 Week Low
Diesel prices fell out of bed Wednesday dropping more than 20 cents at one point to a 5 week low, even as gasoline and crude prices hold around break even for the day. There’s not a clear reason for the big drop in diesel while WTI and RBOB are neutral, but it appears that recession/demand fears may outweigh supply fears as fuel inventories in the US and abroad show signs of recovery.
US stock markets had their worst day in more than 2 years Tuesday following a discouraging inflation report that doomed hopes of the FED easing up on their plans to raise interest rates and tighten the money supply anytime soon. Diesel prices have had a negative correlation to the S&P 500 in recent months, so it doesn’t seem there’s an immediate connection between the selling in the asset classes, but there’s no denying that a recession would take a heavy toll on distillate demand.
A report by a major US investment bank suggested that European natural gas prices would be cut in half this winter as widespread efforts to solve the Russian energy shortages are proving successful. If that prediction plays out, it suggests a lower need to switch to diesel fuel as a supplemental option for electricity generation.
Ethanol prices have surged this week, alongside corn prices following a bullish crop report from the USDA. Another factor to watch closely in ethanol markets is a looming railroad strike that could hamper the primary transportation method for numerous commodities, including grain alcohol that goes into your fuel tank. The gasoline price vs Ethanol, both gross and net of RIN values, has fallen to its lowest level of the year as gasoline prices have come under pressure while ethanol rebounds.
The potential railroad strike would be a double-edged sword for diesel prices, both reducing the 2nd largest demand source for diesel, while also putting a key supplemental supply source at risk for markets that can’t be fully stocked by pipeline or waterborne options. There is a possibility that some of today’s action in ULSD futures could be related to major railroads unwinding fuel hedges if they now anticipate their actual consumption to be below expected levels, but there’s no way to prove whether or not that’s happening.
The API reported a large build in US commercial crude oil stocks of 6 million barrels last week, but since the SPR was drawn down by more than 8 million barrels, the total oil inventories in the US actually fell again during the week. Distillates increased by 1.7 million barrels while gasoline stocks declined by 3.2 million barrels, which looks like it’s contributing to the big price disparity between products this morning. The EIA’s weekly report is due out at its normal time this morning.
The NHC gives a 70% chance that we’ll see another named storm in the Atlantic this weekend, which would be named Fiona. Most early models show this system turning north and east and avoiding a US Landfall, but a few still leave the door open for this storm to get into the Gulf of Mexico and threaten oil production and refineries, so it can’t be dismissed completely yet.
Click here to download a PDF of today's TACenergy Market Talk.
Latest Posts
Refined Products Are Moving Lower For A 2nd Day After Coming Under Heavy Selling Pressure In Wednesday’s Session
Crude Oil Prices Are Trying To Lead Another Rally In Energy Futures This Morning
Week 13 - US DOE Inventory Recap
Energy Markets Are Holding Steady To Start Tuesday’s Session
Social Media
News & Views
View AllRefined Products Are Moving Lower For A 2nd Day After Coming Under Heavy Selling Pressure In Wednesday’s Session
Refined products are moving lower for a 2nd day after coming under heavy selling pressure in Wednesday’s session. Rapidly increasing refinery runs and sluggish diesel demand both seemed to weigh heavily on product prices, while crude oil is still benefitting from the disruption of exports from Iraq. Prices remain range-bound, so expect more choppy back and forth action in the weeks ahead.
US oil inventories saw a large decline last week, despite another 13-million barrels of oil being found in the weekly adjustment figure, as imports dropped to a 2-year low, and refinery runs cranked up in most regions as many facilities return from spring maintenance.
The refining utilization percentage jumped to its highest level of the year but remains overstated since the new 250,000 barrels/day of output from Exxon’s Beaumont facility still isn’t being counted in the official capacity figures. If you’re shocked that the government report could have such a glaring omission, then you haven’t been paying attention to the Crude Adjustment figure this year, and the artificially inflated petroleum demand estimates that have come with it.
Speaking of which, we’re now just a couple of months away from WTI Midland crude oil being included in the Dated Brent index, and given the uncertainty in the US over what should be classified as oil vs condensate, expect some confusion once those barrels start being included in the international benchmark as well.
Diesel demand continues to hover near the lowest levels we’ve seen for the first quarter in the past 20+ years, dropping sharply again last week after 2 straight weeks of increases had some markets hoping that the worst was behind us. Now that we’re moving out of the heating season, we’ll soon get more clarity on how on road and industrial demand is holding up on its own in the weekly figures that have been heavily influenced by the winter that wasn’t across large parts of the country.
Speaking of which, the EIA offered another mea culpa of sorts Wednesday by comparing its October Winter Fuels outlook to the current reality, which shows a huge reduction in heating demand vs expectations just 6-months ago.
It’s not just domestic consumption of diesel that’s under pressure, exports have fallen below their 5-year average as buyers in South America are buying more Russian barrels, and European nations are getting more from new facilities in the Middle East.
Take a look at the spike in PADD 5 gasoline imports last week to get a feel for how the region may soon be forced to adjust to rapidly increasing refining capacity in Asia, while domestic facilities come under pressure.
Crude Oil Prices Are Trying To Lead Another Rally In Energy Futures This Morning
Crude oil prices are trying to lead another rally in energy futures this morning, while ULSD prices are resisting the pull higher. Stocks are pointed higher in the early going as no news is seen as good news in the banking crisis.
WTI prices have rallied by $10/barrel in the past 7 trading days, even with a $5 pullback last Thursday and Friday. The recovery puts WTI back in the top half of its March trading range but there’s still another $7 to go before the highs of the month are threatened.
Yesterday’s API report seems to be aiding the continued strength in crude, with a 6 million barrel inventory decline estimated by the industry group last week. That report also showed a decline of 5.9 million barrels of gasoline which is consistent with the spring pattern of drawdowns as we move through the RVP transition, while distillates saw a build of 550k barrels. The DOE’s weekly report is due out at its normal time this morning.
Diesel prices seems to be reacting both to the small build in inventories – which is yet another data point of the weak demand so far this year for distillates – and on the back of crumbling natural gas prices that settled at their lowest levels in 2.5 years yesterday and fell below $2/million BTU this morning.
While diesel futures are soft, rack markets across the Southwestern US remain unusually tight, with spreads vs spot markets approaching $1/gallon in several cases as local refiners go through maintenance and pipeline capacity for resupply remains limited. The tightest supply in the region however remains the Phoenix CBG boutique gasoline grade which is going for $1.20/gallon over spots as several of the few refineries that can make that product are having to perform maintenance at the same time.
French refinery strikes continue for a 4th week and are estimated to be keeping close to 1 million barrels/day of fuel production offline, which is roughly 90% of French capacity and almost 1% of total global capacity. That disruption is having numerous ripple effects on crude oil markets in the Atlantic basin, while the impact on refined product supplies and prices remains much more contained than it was when this happened just 5 months ago.
Click here to download a PDF of today's TACenergy Market Talk.