Gasoline Futures Have Surged To A New All-Time High On Friday The 13th
Gasoline futures have surged to a new all-time high on Friday the 13th, trading north of $3.90 for the first time and making a run at $4 seem inevitable.
Most cash markets in the US are following the lead of futures and are hitting record highs this morning as well, with Midwestern gasoline a notable exception as Group 3 spots dropped to a 40 cent discount below the June RBOB contract. West Coast basis values meanwhile are seeing strong gains this week following reports of more refinery issues keeping supplies tight in the region.
While it may not (yet) be as dramatic as what we’ve witnessed the past month in ULSD futures, the backwardation in RBOB contracts is reaching extreme levels, with the January 2023 contract trading more than $1 below June values. Just as we saw with distillates, this spread creates a challenging environment of huge basis swings and a reluctance by shippers to hold inventory today and sell it for much less down the road.
Don’t worry about most of the shippers however, as the crack spread charts below show margins that have spiked north of $50/barrel for many, which is roughly $1.20/gallon. Think about what your business will do to save a penny per gallon, and imagine what’s happening at those facilities when they can make $1 just two years after most were hemorrhaging cash. Those higher crack spreads seem to be keeping a bid under RIN values as well, with D6 values reaching their highest levels since last August yesterday.
The IEA followed the lead of OPEC and the EIA in estimating a slowdown in global economic growth in the back half of the year in its monthly oil market report, thanks (or no thanks) in large part to demand destruction caused by “soaring pump prices”. The good news, if you’re looking for an end to high fuel prices, is that the agency expects oil output outside of Russia to grow by 3 million barrels/day from May to December, which should largely offset the drop in Russian output. The report does remind us however that the worst of the supply crunch is still ahead of us as most Russian exports have continued thanks to deals struck before their invasion, but those transactions are quickly coming to an end.
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View AllThe 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.