Diesel Supplies Decline For Seventh Straight Week
The choppy back and forth action continues with a Wednesday’s price rally largely wiped out in the early going Thursday. The pattern seems to be that if prices are going up, we’ll chalk it up to stronger demand, if they’re down, it will be blamed on a possible new deal with Iran.
While the market seems to be going nowhere, it’s been a huge week on the climate front with two potentially landmark events both happening Wednesday.
A Dutch court ordered Shell (aka Royal Dutch Shell) to cut its carbon emissions by 45% by 2030 in a ruling announced Wednesday. The ruling didn’t say how Shell was supposed to accomplish that, but apparently the company believes fire-selling its refineries is an option. After selling off its Anacortes and Deer Park facilities in the past few weeks, the company announced Wednesday it would also be selling its Mobile AL refinery to specialty refiner Vertex.
Exxon Mobil meanwhile saw at least two, and possibly three, board of directors seats won by an activist investor group pushing for the company to rethink its climate change strategy. What does that mean? Maybe not much in terms of operational changes as the fund controls only .02% of the company’s shares, and the 2-3 board seats won’t be enough to create any majorities. That said, it’s a clear victory in terms of changing sentiment from investors, and quite possibly the loudest moment yet in the crescendo of the great energy transition.
Betting on a bailout? A Reuters report Wednesday said that Delta’s refinery arm has stopped buying RINs in a bet that the white house will offer relief as those credits have surged more than $1/RIN so far this year. We did see PES try a similar strategy a few years ago, and get its RIN obligation wiped out in Bankruptcy court, which seemed to work until they blew up their refinery. RINs were under selling pressure before this report moving 2-3 cents lower on the day, but rallied following its release of this report and wiped out most of those early losses.
In fundamental news from the weekly DOE Report: Diesel supplies declined for a seventh straight week. Considering we’re in the traditional seasonal doldrums for diesel demand, and yet days of supply is below 30, you might start being concerned with securing your diesel supply this fall if you haven’t already.
The DOE’s gasoline demand estimate reached a new post-COVID high, and actually surpassed the levels we saw this week in 2019. It is possible to write off that jump to restocking efforts in the wholesale fuel arena following the great Colonial Panic buying spree the prior week.
The PADD 1 & PADD 3 gasoline inventory charts didn’t change much last week, proving that fixing the near-week-long shutdown of Colonial will take much longer than one week. Outages are dwindling in the South East, but returning to normal supply will still take another few weeks.
While refiners are still operating below capacity, that reality of the time it takes to bring new supply to the consumer is a good warning as both gasoline and diesel days of supply are now back to average levels and demand is continued to climb this summer. The rash of refinery closures and conversions over the past month has left the U.S. refined product market with less of a capacity cushion than it’s had in a decade, and more regional shortages & price spikes could be coming as a result.
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Gasoline Futures Are Leading The Energy Complex Higher This Morning With 1.5% Gains So Far In Pre-Market Trading
The Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
Week 39 - US DOE Inventory Recap
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View AllGasoline Futures Are Leading The Energy Complex Higher This Morning With 1.5% Gains So Far In Pre-Market Trading
Gasoline futures are leading the energy complex higher this morning with 1.5% gains so far in pre-market trading. Heating oil futures are following close behind, exchanging hands 4.5 cents higher than Friday’s settlement (↑1.3%) while American and European crude oil futures trade modestly higher in sympathy.
The world’s largest oil cartel is scheduled to meet this Wednesday but is unlikely they will alter their supply cuts regimen. The months-long rally in oil prices, however, has some thinking Saudi Arabia might being to ease their incremental, voluntary supply cuts.
Tropical storm Rina has dissolved over the weekend, leaving the relatively tenured Philippe the sole point of focus in the Atlantic storm basin. While he is expected to strengthen into a hurricane by the end of this week, most projections keep Philippe out to sea, with a non-zero percent chance he makes landfall in Nova Scotia or Maine.
Unsurprisingly the CFTC reported a 6.8% increase in money manager net positions in WTI futures last week as speculative bettors piled on their bullish bets. While $100 oil is being shoutedfromeveryrooftop, we’ve yet to see that conviction on the charts: open interest on WTI futures is far below that of the last ~7 years.
Click here to download a PDF of today's TACenergy Market Talk.
The Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.
The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.
We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.
The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.
Click here to download a PDF of today's TACenergy Market Talk.
Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.
There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.
As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.
Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.