Gasoline Futures Are Attempting To Lead The Energy Complex Higher This Morning
Gasoline futures are attempting to lead the energy complex higher this morning, trading up more than 9 cents/gallon, after finishing a 3rd straight week with heavy losses that have brought some much-needed relief at the pump. Crude oil contracts are trying to join the gasoline rally with WTI briefly rising back above the $100 mark, while diesel prices are resisting the pull higher so far with prompt ULSD futures down 2 cents in the early going after rallying overnight.
Weekly charts suggest we may now be in the early stages of a sideways summer pattern, which would be marked by choppy back and forth action that ultimately does little to change prices until the range is broken. With few options to solve the global fuel supply shortages save for a slowdown in demand (aka a recession), there’s a good chance we see prices ultimately rebound heading into the fall.
Money managers seem to have agreed with that assessment last week, drastically reducing their short positions across the board, driving a large increase in net length after heavy liquidation in the past several weeks. So far that change in speculative interest looks like profit taking by those that bet on the recent price fall, but we’ll need to see open interest pick back up from the current 5-year lows before we can say that the big money funds are truly back in the energy game.
The stare-down between Russia and Europe continues to be the big story on the supply side of the energy equation, with daily changes to various product flows, and guesses as to their impact continuing to influence prices. A Rystad Energy report this morning takes a closer look at various scenarios for European natural gas supplies, and recaps the other options in the works to replace Russian imports. An EU official indicated the region could end Russian fuel oil and coal imports in the next few weeks, well ahead of the agreed-upon deadline. European tanker companies are racing to move as much petroleum as they can to China and India before EU sanctions kick in.
Baker Hughes reported a net increase of 2 oil rigs working in the US last week, while natural gas rigs held steady for a 2nd straight week. Oklahoma gets credit for most of the oil increase last week, while Louisiana and New Mexico both saw declines.
After dominating headlines through much of the pandemic, concerns over “clean” energy supplies have taken a backseat to concerns over energy supplies. The latest casualty: Several companies combining two things people only pretend to understand, carbon credits and cryptocurrencies, have stalled out due to the crash in digital currency markets.
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Wholesale Gasoline Prices Across Most Of The US Reached Their Lowest Levels In 2-Years Thursday
Wholesale gasoline prices across most of the US reached their lowest levels in 2-years Thursday, after the morning recovery rally fizzled in the afternoon. RBOB gasoline futures dipped below the $2 mark briefly, before settling just above it, while cash prices in several major markets dropped below $1.80 for the first time since December 2021, while crude oil and diesel prices reached fresh 6-month lows.
The bulls are giving it another go this morning, pushing futures up 5-cents for gasoline and 6- cents for diesel, trying to snap the streak of 6-straight daily losses for ULSD, although we’ll need to see products double their early gains to erase the weekly decline.
Energy prices didn’t react much initially to the November Payroll report that estimated 199,000 jobs were added during the month, while the official unemployment rate dipped to 3.7% from 3.9% and the U-6 rate dropped to 7% from 7.2%. Equity futures moved modestly lower immediately following that report as labor market resilience throws cold water on recent hopes for interest rate cuts, but as has often been the case for several months now, energy prices are managing to shrug off the move in stocks.
Big negative basis values continue to be the theme across the Gulf Coast and Mid-Continent, with USGC, Group 3 and Chicago all trading at 20+ cent discounts to futures for both gasoline and diesel. Those negative values are weighing on refining margins with USGC crack spreads approaching their lowest levels in 2 years, which will almost certainly curtail some refinery run rates through the winter months. East Coast refiners meanwhile are finding themselves in a strong position as shipping bottlenecks keep PADD 1 inventories low and their crack spreads remain in the mid $20/barrel range despite the recent pull back in futures.
The long-awaited Dangote refinery is reportedly receiving its first cargo of crude oil today. That new 650mb/day refinery would be the world’s largest single train refinery, but is already years behind schedule, and many still doubt its ability to run anywhere near capacity. We’ve already seen the impact Kuwait’s 615mb/day Al Zour refinery can have on markets across the Atlantic basin, so whether or not the Nigerian facility can ramp up run rates could have a major influence on product prices next year.
Click here to download a PDF of today's TACenergy Market Talk.
West Coast Gasoline Inventories Dropped Sharply Last Week And Are Now Holding Below Their 5-year Seasonal Range
Energy futures are bouncing this morning as buyers are finally stepping in after RBOB futures touched a 2-year low Wednesday, while WTI and ULSD both hit their lowest levels in 5 months. There are headwinds both fundamentally and technically, but so far, the market isn’t acting like a collapse is imminent and as the table below shows this is right about the time when gasoline prices bottomed out the past two years.
Saudi Arabia and Russia released a joint statement this morning, following Vladimir Putin’s trip to the Kingdom, urging OPEC & friends to join their output cut agreement, which takes the risk of a price war that could send prices plunging (as we’ve seen twice in the past decade) off the table for now and seems to be contributing to WTI climbing back above the $70 mark and Brent getting back above $75.
The DOE reported a healthy bounce back in fuel demand estimates after the annual Thanksgiving holiday hangover, but that wasn’t enough to prevent refined product inventories from continuing to build as refiners continue to return from maintenance and increase run rates. The builds in gasoline inventories particularly suggest it could be a tough winter for some refiners who are already having some challenges clearing their extra barrels.
The exception on gasoline comes in PADD 5. West Coast gasoline inventories dropped sharply last week and are now holding below their 5-year seasonal range, which is dramatically lower than year-ago levels which set the top end of that range. Those tight stocks help explain why West Coast values are the most expensive in the country by a wide margin and leave little cushion to deal with unplanned maintenance which helps explain the jump in CARBOB basis values this week.
On the diesel side of the barrel, the recent themes of tight supplies on the East Coast, ample supply in the Midwest and Gulf Coast, and a Wild Card on the west coast since we don’t see Renewable Diesel inventories in the weekly figures continues. Take a look at the PADD 2 gasoline and diesel charts below and it’s easy to understand why we’re seeing cash prices in both Group 3 and Chicago approaching multi-year lows with 20-30 cent discounts to futures becoming the rule rather than the exception.
The market seemed to shrug off the drop in total US crude oil stocks, as Cushing OK stocks increased for a 7th straight week, and the decline was largely driven by the largest negative adjustment value on record, which went from a positive 1.2 million barrels/day last week to negative 1.4 million barrels/day this week. The EIA has done a lot of work trying to fix the bugs in its report system and to better define what exactly it’s reporting, but clearly there’s still more work to be done.