Gasoline Futures Leading Energy Complex Higher

Market TalkThursday, Mar 7 2019
Gasoline Futures Leading Energy Complex Higher

RBOB gasoline futures are leading the energy complex higher once again to start Thursday’s session, reaching a fresh 4 month high and punching through chart resistance at the 200 day moving average overnight. A large draw in gasoline inventories seems to have helped the annual spring gasoline rally with its latest push higher even though oil and distillate prices are lagging.

If RBOB futures can hold above the 200 day moving average (known historically as a level that large funds have used as an indicator of strength vs weakness) there is not much on the charts to prevent a run at the $2 mark over the coming weeks. WTI and ULSD futures may continue to act as a drag on the gasoline rally however if they can’t find enough momentum to break out of their sideways range.

According to the DOE, US refinery runs increased for a 2nd straight week, suggesting that we have made the turn for spring maintenance, and should see run rates increase over the next 6 weeks. One potential flaw with that typical-seasonal pattern: More unplanned refinery downtime. After Valero reported its McKee FCC went down again last week (for the 2nd time this year) multiple explosions were reported at HollyFrontier’s plant in El Dorado KS, and the Richmond CA refinery was also reported to have more problems.

Why are gasoline prices up a nickel since the DOE reported a 12% increase in PADD 1 refining rates last week? Gasoline stocks along the East Coast dropped by more than 3 million barrels, and even with the increase (from an 8 year low last week) refinery runs are still below the bottom end of their seasonal range.

Why are crude oil prices rallying even though oil inventories built by 7 million barrels last week? Net imports were up more than 1 million barrels/day on the week, accounting for an 11 million barrels increase based on trade flows, meaning the headline value is not likely reflective of lower demand.

The EPA reported that model year 2017 vehicles reached a record high fuel economy, and a record low for GHG emissions in their latest automotive trends update. As the chart below shows, manufacturers are using a wide range of technologies from turbo-charged engines (which has been driving up demand for premium gasoline) to more advanced transmissions and hybrid engines to achieve these targets.

Today’s head scratcher: With the world racing to produce more diesel ahead of expected shortages when the IMO 2020 rules take effect, why would Russia’s Rosneft delay upgrading projects at 5 of its refineries that would allow for increased diesel production? Are they tight on funds or betting on non-compliance to manage through the new rules?

CLICK HERE for a PDF of today's charts

Gasoline Futures Leading Energy Complex Higher gallery 0

News & Views

View All
Pivotal Week For Price Action
Market TalkFriday, Dec 9 2022

Energy Futures Are Seeing Modest Gains To Start Friday’s Session

Energy futures are seeing modest gains to start Friday’s session, limping towards the finish line of a week that’s pushed prices to their lowest levels of the year, and cut 20-30 cents off of refined products. 

WTI futures have had a fairly muted reaction to news that the Keystone pipeline was forced to shut after more than ½ million gallons reportedly spilled into a Kansas creek this week. A timeline for restart is still unclear, but so far the price action suggests refiners aren’t panicking about where they’ll find replacement barrels, and those north of the spill may be rewarded with discounted barrels that now find themselves stranded, such as Western Canadian Select which is now trading down to $50/barrel.  

If RBOB can finish in the green today, it would mark the first trading day so far in December where the gasoline contract didn’t end lower, after 6 straight losing sessions. Cash markets are also looking weak, as the spread between gasoline prices in New York and the Gulf Coast dropped to its lowest level since early October this week, putting downward pressure on the price to lease space on Colonial’s Line 1. With refiners running full out to capture huge diesel margins, gasoline is becoming an unwelcome byproduct in many markets, and could become oversupplied in some regions in the near future, which could force some plants to reduce run rates. 

Distillate prices are seeing a similar convergence with the spread between Gulf and East coasts now less than 30 cents/gallon, which is more than $1/gallon lower than it was a month ago. Softer demand for both products due to the seasonal slowdown in gasoline and unseasonably warm weather limiting Heating Oil consumption are both getting credit for these cash markets suddenly returning to something more closely resembling what we’re used to seeing. 

Bad news is good news for stock markets as any negative data points may give the FED reason to slow their interest rate hikes.  Yesterday we saw stocks rally after an increase in jobless claims in the US. Today we’re seeing stocks give back some of yesterday’s gains after the PPI report showed inflation is remaining stubbornly high and above many forecasts, giving the FED another reason to continue with its tightening. Energy contracts continue to have a weak correlation to daily moves in equity prices, so it’s not too surprising we are seeing a small rally today even though stocks are pulling back.

Chinese refiners are racing to take advantage of liberal quotas this year and are expected to reach a record level of refined fuel exports this month.  Those supplies have provided a much needed supplement for a world short on distillates, but there are many questions and few answers about what they’ll look like next year.

Click here to download a PDF of today's TACenergy Market Talk.

Pivotal Week For Price Action
Market TalkThursday, Dec 8 2022

Refined Product Prices Are Bouncing Moderately This Morning After Selling Off Heavily For A Fifth Consecutive Trading Session Yesterday

Refined product prices are bouncing moderately this morning after selling off heavily for a fifth consecutive trading session yesterday. Heating oil futures have dropped over 50 cents per gallon since the beginning of the month as traders reconcile rebounding national distillate inventories, a warmer-than-expected European winter, dismal Chinese demand outlook, and the execution of the ban on Russian oil exports. Gasoline futures have dropped just over 25 cents so far in December while the West Texas Intermediate crude oil contract has fallen just $5 per barrel since last week.

The Department of Energy reported a 5.2 million barrel draw in crude oil inventories last week, marking the fourth consecutive week of stockpile drawdowns. On the flip side, national gasoline and diesel stocks likewise grew for the fourth week in a row, which makes sense given refineries are running near their 5-year seasonal high. Total refined product demand continued to sink, as typical of this time of year before everyone jumps in their cars to drive to grandma’s for Christmas.  

Oil futures have fallen below the $80 mark this week and have now given up all gains seen since Russia invaded Ukraine. While China’s relaxation of their pandemic policy should provide some upward pressure on oil prices, in theory, it seems most aren’t convinced the lack of restrictions will translate to increased petroleum demand.

Premiums to ship gasoline and diesel on the Colonial Pipeline (the main US’s petroleum artery going from Houston to New York) have dropped significantly over the past few days. Shippers can now move gasoline up the Eastern seaboard for “only” 9 cents above the pipeline’s tariff, which is the lowest its been since October. Moving diesel to the Northeast will run you 7 cents over costs.

Click here to download a PDF of today's TACenergy Market Talk.

Pivotal Week For Price Action
Market TalkWednesday, Dec 7 2022

The Downward Price Action Seen In Monday’s Trading Session Continued Into Tuesday

The downward price action seen in Monday’s trading session continued into Tuesday and energy futures charts are poised to test some significant resistance levels. Most notably, the prompt month ULSD futures contract is set to test its 100-week moving average at the ~$2.80 level, beyond which the path is open for prices to fall down to the $2.20s.

WTI crude oil futures face a tough test these next couple months as it bears down on its 200-month moving average which, if broken, could lead prices down to the $65 range. The energy complex is bouncing this morning, albeit moderately, on the news that China is abandoning its COVID testing and quarantine protocols. The mild upward price action suggests traders are hesitant to believe that will translate to a return of energy demand.

The Energy Information Administration published its monthly Short Term Energy Outlook yesterday, highlighting its higher-than-expected global oil inventory level estimate for 2023. The EIA also noted that the execution of the ban on Russian seaborne petroleum products by the European Union has rendered the future of distillate remarkedly hazy. Price direction for diesel’s home-heating counterpart seems a little easier to forecast: moderately higher prices are expected through January as winter sets in and demand ramps up.

The American Petroleum Institute reported a sizeable 6.4 million barrel draw in US crude oil inventories last week, along with builds in refined product stocks of 5.9 million barrels and 3.6 million barrels of gasoline and diesel, respectively. The official report published by the Department of Energy is due to come out at its regular time this morning (9:30am CST) and its confirmation or contradiction of the API’s estimate will likely determine the day’s trading sentiment.

Click here to download a PDF of today's TACenergy Market Talk.