Diesel Prices Have Hit A Record High This Morning
Diesel prices have hit a record high this morning as global markets are experiencing a Lord of the Flies moment as they come to terms with the shortage of oil products, both edible and fossil.
RINs are rallying to their highest levels in almost a year as Indonesia’s palm oil export ban was expanded to include unrefined oils, which is setting off another frantic scramble for replacements to process all sorts of foods, fuels and other products.
While ULSD futures have reached all-time highs, only the NY Harbor spot market is trading above where it peaked out in March, while other cash markets around the US are still well below their peaks. The extreme backwardation that has been well documented over the past month is a primary driver of this spread between markets, and also makes resupply a challenge when there’s a 70 cent price drop looming in the next 30 days.
Prompt diesel prices in the Chicago market are trading more than $1/gallon below those in the NY Harbor, so if you live in PA you might notice a few more tankers heading east this week as those with both the supply and the freight capacity could net $5,000 or more per load. While it’s not unusual to see Chicago trade at steep discounts to neighboring markets at times, it is unusual to see San Francisco spot diesel trading nearly $1 below NYH values, especially given the reduction in operable refining capacity in the bay area in recent years.
The big question for the months ahead is whether the other US markets will rally to meet New York, or if New York will collapse to get in line with its neighbors. It seems likely that 80 cent backwardation won’t last long (just as 15 cent backwardation which shocked the world in 2008 didn’t) and the divergence between regional markets can often be the precursor to a trend reversal. That said, total US diesel inventories remain well below their normal range, and international buyers are frantic, so it’s much too soon to say this rally is coming to an end.
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Energy Futures Are Caught Up In Headline Tug-O-War This Morning
Energy futures are caught up in headline tug-o-war this morning with Canadian oil production concerns and a positive US GDP report trying to push prices higher while sinking Chinese demand worries and Gaza ceasefire hopes are applying downward pressure. The latter two seem to be favored more so far this morning with WTI and Brent crude oil futures down ~45 cents per barrel, while gasoline and diesel prices are down about half a cent and two cents, respectively.
No news is good news? Chicago gasoline prices dropped nearly 30 cents yesterday, despite there not being any update on Exxon’s Joliet refinery after further damage was discovered Wednesday. Its tough to say if traders have realized the supply situation isn’t as bad as originally thought or if this historically volatile market is just being itself (aka ‘Chicago being Chicago’).
The rain isn’t letting up along the Texas Gulf Coast today and is forecasted to carry on through the weekend. While much of the greater Houston area is under flood watch, only two refineries are within the (more serious) flood warning area: Marathon’s Galveston Bay and Valero’s Texas City refineries. However, notification that more work is needed at Phillip’s 66 Borger refinery (up in the panhandle) is the only filing we’ve seen come through the TECQ, so far.
Premiums over the tariff on Colonial’s Line 1 (aka linespace value) returned to zero yesterday, and actually traded in the negatives, after its extended run of positive values atypical of this time of year. Line 1’s counterpart, Line 2, which carries distillates from Houston to Greensboro NC, has traded at a discount so far this year, due to the healthy, if not over-, supply of diesel along the eastern seaboard.
Click here to download a PDF of today's TACenergy Market Talk.
WTI And Brent Crude Oil Futures Are Trading ~$1.50 Per Barrel Lower In Pre-Market Trading
The across-the-board drawdown in national energy stockpiles, as reported by the Department of Energy yesterday, stoked bullish sentiment Wednesday and prompt month gasoline, diesel, and crude oil futures published gains on the day. Those gains are being given back this morning.
The surprise rate cut by the People’s Bank of China is being blamed for the selling we are seeing in energy markets this morning. While the interest rate drop in both short- and medium-term loans won’t likely affect energy prices outright, the concern lies in the overall economic health of the world’s second largest economy and crude oil consumer. Prompt month WTI and Brent crude oil futures are trading ~$1.50 per barrel lower in pre-market trading, gasoline and diesel are following suit, shaving off .0400-.0450 per gallon.
Chicagoland RBOB has maintained its 60-cent premium over New York prices through this morning and shows no sign of coming down any time soon. Quite the opposite in fact: the storm damage, which knocked Exxon Mobil’s Joliet refinery offline on 7/15, seems to be more extensive than initially thought, potentially extending the repair time and pushing back the expected return date.
There are three main refineries that feed the Chicago market, the impact from one of them shutting down abruptly can be seen in the charts derived from aforementioned data published by the DOE. Refinery throughput in PADD 2 dropped 183,000 barrels per day, driving gasoline stockpiles in the area down to a new 5-year seasonal low.
While it seems all is quiet on the Atlantic front (for now), America’s Refineryland is forecasted to receive non-stop rain and thunderstorms for the next four days. While it may not be as dramatic as a hurricane, flooding and power outages can shut down refineries, and cities for that matter, all the same, as we learned from Beryl.