Diesel Traded At Lows Not Seen Since 2021 & Federal Reserve Is Set To Announce Its Latest Round Of Interest Rate Hikes Today

Market TalkWednesday, May 3 2023
Pivotal Week For Price Action

WTI futures lead the complex lower yesterday, dropping over 5% in Tuesday’s formal trading session. Prompt month gasoline and diesel futures followed suit as both took a ~10 cent per gallon haircut. The American petroleum benchmarks are extending their slide this morning as crude oil traded below the $70 level in the overnight session, diesel traded at lows not seen since 2021, and prompt month RBOB is breaking below its 20-week and 10 month moving averages.

General fears surrounding the prospect of a US recession are taking credit for this week’s selloff, with some citing continued inflation, regional bank failures, spending cuts, and layoffs as indicators of a general economic slowdown. Those, combined with the so-far lackluster return of Chinese demand, paint a bleak global oil demand outlook. This bearish sentiment is completely offsetting OPEC+’s intentional and unintentional production cuts.

The Federal reserve is set to announce its latest round of interest rate hikes today at 1:00pm CDT. Yesterday, the CME FedWatch Tool showed a bump of 25bps as a 94% probability, up from 50% a month ago. This morning however, the rate hike is predicted with “only” an 85% surety. This confidence change doesn’t seem to affect the expectation of a rate increase, it rather lends credence to the idea that the Fed may signal a pause in its rate hike campaign.

Yesterday, Marathon announced the completion of its South Texas Asset Repositioning (STAR) project at its refinery in Galveston Bay, TX earlier in Q1 of this year. They plan to continue to ramp up throughput on its upgraded residual hydrocracker unit through Q2 2023 that will eventually add an additional 40mbd of crude capacity and 17mbd of residual processing capacity. The largest US refinery operator also noted that it has reached its Phase 1 target renewable fuel production of 260 million gallons per year at its Martinez refinery. Phase 2 of the project is set to be completed in back half of the year and will add an incremental 470 million gallons per year of renewable capacity.

The American Petroleum Institute published its weekly US petroleum snapshot yesterday afternoon, most notably showing a ~4 million barrel drop in national crude oil inventories. The less exciting headline values: gasoline stocks up 400k barrels, diesel down 1 million barrels, and Cushing crude oil up 700k barrels. The DOE will publish its official report at 9:30am CDT.

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Market Talk Update 05.03.2023

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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Pivotal Week For Price Action