Gasoline Futures Reached A Fresh 6-Month High Overnight

Market TalkThursday, Apr 6 2023
Pivotal Week For Price Action

Gasoline futures reached a fresh 6-month high overnight as the spring rally towards $3 continues heading into the holiday weekend. 

Wednesday’s session saw healthy buying for refined products, after the DOE’s weekly report showed improving demand and tighter supplies. Gasoline days of supply in the US dropped below 24 days based on last week’s DOE estimate, which is below the 5-year seasonal range, and the lowest since October, which also happened to be the last time futures traded at $2.84. 

Distillates saw a huge decline in the weekly days of supply estimate, which had been holding near average even though inventories are low since demand in Q1 had been so atrocious.  A 14% jump in the weekly demand estimate pushed those values below their seasonal range and to a new 6-month low as well, although traders continue to act more skeptical on ULSD than they do on RBOB, which is not unusual for springtime. The biggest question for diesel is whether or not that jump in the demand estimate was a 1-week anomaly (which are common in the DOE’s data) or if it’s a sign that the slowdown may finally be coming to an end.

Good Friday is one of only 3 holidays a year where the CME completely shuts down trading for the day, vs US-centric holidays like Memorial Day and 4th of July where trading occurs in abbreviated sessions. The NYSE is also closed tomorrow, but it is not a federal holiday so the March payroll report will be released and we won’t know the market reaction until futures trading reopens Sunday night. 

Yesterday we saw the ADP payroll report come in well below February levels and below many forecasts. That surprise makes tomorrow’s jobs report potentially more newsworthy since labor markets have been surprisingly resilient up until now and many will look to the BLS for confirmation of the private figures. If that bad news for jobs is confirmed, it could be seen as good news for Wall Street, who simply can’t seem to give up on the idea that the FED is ready to cut interest rates, even though they keep saying they’re not.

Valero has added a new 55mb/day coker at its Port Arthur TX refinery, which will increase its overall capacity for finished products at the facility. You won’t see that new capacity in the EIA’s data since this week (they still haven’t shown the new Exxon Beaumont 250mb/day that’s been online for a month) and you won’t see it in run rates just yet since a fire at the refinery last weekend has shut other units and kept the plant from reaching full rates.

Crude oil inventories saw another decline last week as a recovery in exports and a decline in the adjustment factor offset a jump in imports and another small release from the SPR.  Crude oil production (which is still net of the adjustment factor for now) continued to hold steady just above 12 million barrels/day.

The EIA this morning highlighted the new addition of WTI in Midland TX in the Brent crude oil price basket. Don’t confuse that with WTI in Cushing, which is the NYMEX delivery point. 

Nationwide protests continue in France, which has taken an estimated 1 million barrels/day of refinery output offline over the past couple of weeks. Despite the ongoing disruptions, it appears Exxon has figured out a way to restart operations at its Port Jerome refinery, which may bring roughly a quarter of the total lost output back online if it can reach full rates. It’s still unclear if this means that other plants will be able to restart as well.  Those operations will become more important as we approach the driving season, and the US East Coast will want to lean on European gasoline imports to meet demand.

We’re approaching the 5-year anniversary of the Husky refinery in Superior Wisconsin exploding and forcing most of that town to be evacuated. That rebuilt facility, with new ownership hoping to avoid the stigma Husky had earned after blowing up multiple refineries, is scheduled to come back online this summer.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Market Talk Update 04.06.2023

News & Views

View All
Pivotal Week For Price Action
Market TalkFriday, Apr 12 2024

Charts Continue To Favor A Push Towards The $3 Mark For Gasoline, While Diesel Prices May Need To Be Dragged Along For The Ride

Energy prices are rallying once again with the expected Iranian attack on Israel over the weekend appearing to be the catalyst for the move. RBOB gasoline futures are leading the way once again, trading up more than a nickel on the day to reach a fresh 7 month high at $2.8280. Charts continue to favor a push towards the $3 mark for gasoline, while diesel prices may need to be dragged along for the ride.

So far it appears that Motiva Pt. Arthur is the only refinery that experienced a noteworthy upset from the storms that swept across the southern half of the country this week. Those storms also delayed the first round of the Masters, which matters more to most traders this week than the refinery upset.

Chevron’s El Segundo refinery in the LA-area reported an unplanned flaring event Thursday, but the big moves once again came from the San Francisco spot market that saw diesel prices rally sharply to 25 cent premiums to futures. The Bay Area now commands the highest prices for spot gasoline and diesel as the conversion of 1 out of the 4 remaining refineries to renewable output is not-surprisingly creating disruptions in the supply chain.

RIN values dropped back below the 50-cent mark, after the recovery rally ran out of steam last week. The EPA is facing numerous legal challenges on the RFS and other policies, and now half of the US states are challenging the agency’s new rule restricting soot emissions. That lack of clarity on what the law actually is or may be is having widespread impacts on environmental credits around the world and makes enforcement of such policies a bit of a joke. Speaking of which, the EPA did just fine a South Carolina company $2.8 million and require that it buy and retire 9 million RINs for improper reporting from 2013-2019. The cost of those RINs now is about 1/3 of what it was this time last year, so slow playing the process definitely appears to have paid off in this case.

The IEA continues to do its best to downplay global demand for petroleum, once again reducing its economic outlook in its Monthly Report even though the EIA and OPEC continue to show growth, and the IEA’s own data shows “Robust” activity in the first quarter of the year. The IEA has come under fire from US lawmakers for changing its priorities from promoting energy security, to becoming a cheerleader for energy transition at the expense of reality.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 11 2024

Diesel Prices Continue To Be The Weak Link In The Energy Chain

Energy prices are ticking modestly lower this morning, despite warnings from the US that an Iranian attack on Israeli interest is “imminent” and reports of weather induced refinery outages, as demand fears seem to be outweighing supply fears temporarily. Diesel prices continue to be the weak link in the energy chain with both the DOE and OPEC reports giving the diesel bears reason to believe lower prices are coming.

The March PPI report showed a lower inflation reading for producers than the Consumer Price Index report, leading to an immediate bounce in equity futures after the big wave of selling we saw yesterday. To put the CPI impact in perspective, a week ago Fed Fund futures were pricing in an 80% chance of an interest rate cut by the FED’s July 31 meeting, and today those odds have shrunk to 40% according to the CME’s FedWatch tool.

OPEC’s monthly oil market report held a steady outlook for economic growth and oil demand from last month’s report, noting the healthy momentum of economic activity in the US. The cartel’s outlook also highlighted significant product stock increases last month that weighed heavily on refining margins, particularly for diesel. Given the US focus on ULSD futures that are deliverable on the East Coast, which continues to have relatively tight supply for diesel, it’s easy to overlook how quickly Asian markets have gotten long on distillates unless of course you’re struggling through the slog of excess supply in numerous west coast markets these days. The OPEC report noted this in a few different ways, including a 33% decline in Chinese product exports as the region simply no longer needs its excess. The cartel’s oil output held steady during March with only small changes among the countries as they hold to their output cut agreements.

If you believe the DOE’s diesel demand estimates, there’s reason to be concerned about domestic consumption after a 2nd straight week of big declines. The current estimate below 3 million barrels/day is something we typically only see the week after Christmas when many businesses shut their doors. We know the DOE’s figures are missing about 5% of total demand due to Renewable Diesel not being included in the weekly stats, and it’s common to see a drop the week after a holiday, but to lose more than a million barrels/day of consumption in just 2 weeks will keep some refiners on edge.

Most PADDs continue to follow their seasonal trends on gasoline with 1 and 2 still in their normal draw down period, while PADD 3 is rebuilding inventories faster than normal following the transition to summer grade products. That rapid influx of inventory in PADD 3 despite robust export activity helps explain the spike in premiums to ship barrels north on Colonial over the past 2 weeks. Gasoline also saw a sizeable drop in its weekly demand estimate, but given the holiday hangover effect, and the fact that it’s in line with the past 2 years, there’s not as much to be concerned about with that figure. While most of the activity happens in PADDs 1-3, the biggest disconnect is coming in PADDs 4 and 5, with gasoline prices in some Colorado markets being sold 50 cents or more below futures, while prices in some California markets are approaching 90 cents above futures.

Severe weather sweeping across the southern US knocked several units offline at Motiva’s Pt Arthur plant (the country’s largest refinery) Wednesday, and it seems likely that Louisiana refineries will see some disruption from the storm that spawned tornadoes close to the Mississippi River refining hub. So far cash markets haven’t reacted much, but they’ll probably need more time to see what damage may have occurred.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action