Gasoline Futures Reached A Fresh 6-Month High Overnight
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.
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Refined Products Bounce Back And Forth Across The Break-Even Line To Start Friday’s Trading
Gasoline Futures Rally Despite Inventory Builds, Increased Throughput
Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf
Week 23 - US DOE Inventory Recap
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View AllRefined Products Bounce Back And Forth Across The Break-Even Line To Start Friday’s Trading
The choppy action continues for energy markets with refined products bouncing back and forth across the break-even line to start Friday’s trading after some big swings Thursday.
RBOB futures led the rollercoaster ride Thursday, trading up 4 cents in the early morning hours, only to see those gains turn into 10 cent losses mid-morning, and then erasing most of those losses in the early afternoon following an ENT report of unplanned maintenance at the largest refinery on the East Coast.
The selling portion of the ride was blamed on a combination of an increase in jobless claims, and the disruptive impacts of the Canadian wildfires on the major population centers along the East Coast. While air traffic has been disrupted, so far there are not any reports of delays in ship traffic around the New York Harbor, and the strong basis and time spreads we’ve seen in NY have been easing this week, so it appears that this event is more concerning to the demand side of the equation than supply.
From a technical perspective, it’s not surprising to see this type of back-and-forth action as most petroleum contracts look to be stuck in neutral territory on the charts, which encourages trading programs to sell as prices get towards the top end of a range, and buy when it gets to the low end.
The Atlantic Hurricane season is off to a quiet start with no tropical development expected over the next week, but NOAA did issue an El Nino advisory Thursday that suggests the warm-water pattern in the Pacific could reach “supersized” levels and create all sorts of disruptive events. Perhaps most notable in the report is that forecasters don’t believe this year’s El Nino will have the same dampening impact on Atlantic hurricanes due to record warm temperatures in the water. Here’s a brief recap in case you missed the most memorable El Nino from 25 years ago.
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Gasoline Futures Rally Despite Inventory Builds, Increased Throughput
Gasoline futures led another strong rally in the energy complex Wednesday and continued marching higher overnight before pulling back to near break-even levels around 7:45am central.
The RBOB contract has now wiped out the post-Memorial Day selloff, and erased the losses from the contract roll to July, setting up another test of the May highs at $2.73. If that resistance breaks, there’s a good chance we see another run at the $2.90 level, but if it holds we are probably still stuck in a sideways pattern as we move through the summer months. West Coast gasoline prices meanwhile have reached a 3-month high as surging basis values compound the move in futures.
The rally came despite healthy inventory builds for refined products and strong refinery runs across all 5 PADDs reported last week, with traders (or their algorithms) appearing to focus instead on healthy demand estimates in the DOE’s weekly status report. Gasoline also saw healthy exports last week, while diesel shipments overseas continued their decline which has helped keep downward pressure on diesel prices, which is essentially the polar opposite of what we were experiencing a year ago.
Lies, damned Lies and statistics: PADD 3 refinery utilization hit 98.8% of the official capacity figure last week, which would mark a 5 year high, except the numbers are wrong. The DOE still isn’t including recent capacity additions of almost 300mb/day in those stats, so the actual figure is about 3% lower. Don’t worry though, the lack of accurate data probably isn’t intentional. The DOE recently announced it was suspending data collection for some of its monthly reports as the agency is still struggling to overcome the IT Systems failure they experienced a year ago. Add this to the realization that the official crude production and petroleum demand figures have been incorrect due to a lack of clarity surrounding condensate production that comes along with oil output.
Speaking of which, the official US Oil output figure surged to the highest levels since the COVID lockdowns began more than 3 years ago last week. No word from the EIA if this means actual production increased, or if they’ve just changed the way they’re reporting the molecules coming out of the ground.
Irving Oil released a statement highlighting a strategic review of the company, that could include selling the business that’s been held by the Irving family for nearly 100 years. The Irving Refinery in New Brunswick is Canada’s largest at 300mb/day and is the largest importer of fuels into the northeastern US. Critics are arguing that the review is an attempt to politicize Canada’s Clean Fuel Regulation that could weigh on the refinery’s profitability when it goes into full effect in July or could simply incentivize the facility to send more product to the US.
RIN values saw their first bounce in a couple of weeks, with both D6 and D4 values climbing back above the $1.40 mark after their recent slide from the mid $1.50s. We’re still 6 days away from the EPA’s deadline to issue the final RFS ruling for the next couple of years.
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Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf
Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce.
A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling.
New tactic? Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour.
The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates.
The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.
The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning.
We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.
Click here to download a PDF of today's TACenergy Market Talk.