Equity And Energy Prices Have Been Moving Modestly Higher Since The FOMC Announcement
Equity and energy prices have been moving modestly higher since the FOMC announcement was released Wednesday afternoon, snapping the losing streak that gripped most markets in the front half of the week. That sigh of relief rally sets up another test of the downward sloping trend-lines that have had refined products under pressure for the past two months, with the $2.17 area for RBOB and $2.28 for ULSD pivotal levels to watch if a longer term bear market is going to be avoided.
The FED announced an accelerated reduction in its bond buying programs, increasing their taper by roughly double the previous schedule, and also forecast 3 rate increases in 2022. While this announcement marks one of the most dramatic course changes in the FOMC’s history, it apparently was less severe than many in the market were anticipating following the record inflation readings over the past few months, as equities and energy prices all rallied following the news, while the US Dollar declined, and the probabilities of rate increases for 2022 actually ticked slightly lower.
Refined product prices were already reversing course from early morning losses after a DOE report that surprised with some bullish readings.
The DOE’s weekly estimate for US Petroleum demand reached an all-time high last week, surpassing 23 million barrels/day for the first time on record. Diesel demand led the move with an incredible 36% increase week on week, marking the highest weekly reading since 2003. Those figures are taken with a large grain of salt however as the DOE’s weekly estimates are notoriously volatile, and particularly this time of year we tend to see a huge recovery rally in the weeks after Thanksgiving, only to see demand tumble to its lowest levels of the year the last week of December and the first week of January.
Gasoline demand also saw a healthy increase, that helped drive a counter-seasonal decline in gasoline stocks. Here too, a strong recovery after the Thanksgiving holiday hangover makes sense, but there are plenty of signs that demand may already be under pressure from the rash of severe storms that have swept most of the country over the past week.
Speaking of which, another round of severe storms swept from New Mexico to Minnesota Wednesday, with hurricane force winds reported in numerous spots. So far, there haven’t been reports of damage or power loss to refineries in the storm’s path, so it may be a non-issue for fuel supply.
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Gasoline Futures Are Leading The Way Lower This Morning
It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.
Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.
A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.
Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.
Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.
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The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days
The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.
The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.
An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.
Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.
In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.
The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.
Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.
Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.
PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.
Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.