Energy Futures Rallied To End The Day
After a soft start to Wednesday’s session, energy futures rallied to end the day, with Brent, WTI and ULSD contracts all reaching new 3 year and 11 month highs. We’re seeing a similarly soft start to today’s trading but the sellers seem cautious as the oil market has the feel of a bullish freight train that no one wants to step out in front of. The EIA weekly report surprised many with a large build in crude oil stocks that initially sent prices lower, only to see buyers step in as it seemed those increases were driven by the volatile nature of the import/export flow for oil in the US.
Oil stocks had their largest weekly increase of the year, rising just under 8 million barrels as export dropped sharply, which accounted for 6.4 million barrels of the increase.
Refinery runs offered a bit of a surprise, with rates rising in 4 out of 5 PADDS, and showing a small net increase of 77mb/day nationwide despite the expectations for a busy fall maintenance season. As the Refinery Run charts below show, we are still on the early side of the seasonal maintenance window, so it’s likely we’ll continue to see rates drop over the next 4 weeks. Midwest (PADD 2) run rates reached their lowest level in nearly 2.5 years, while Gulf Coast (PADD 3) rates continue to impress, running nearly ½ million barrels/day more than they’ve ever done this time of year.
There’s a glut of gasoline inventory in parts of the US that’s just not going away. Total US gasoline stocks held above their 5-year seasonal range this week, with another counter-seasonal build in PADD 1 inventories largely offsetting declines in the other 4 PADDs. The excess along the East Coast may account for the relative underperformance of RBOB vs the rest of the petroleum complex over the past few weeks. The reason for the excess in gasoline inventories is easily explained by refinery output that is holding above the high end of its 5 year range, while demand is stagnating near the 5 year average.
The storm system moving through the Caribbean is still given a 30% chance of development, although forecast models suggest it’s likely it will make it into the central to eastern part of the Gulf of Mexico next week. That’s good news for the refineries along the TX Gulf Coast, but LA refiners will have to watch for a few more days.
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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.