Gasoline Prices Drop For Third Straight Day Amid Broader Energy Slump

Market TalkWednesday, Apr 19 2023
Pivotal Week For Price Action

Gasoline prices are leading the energy complex lower for a 3rd straight day, dropping by more than a nickel in early trading and shrugging off inventory reports that showed stocks declined across the country last week. While diesel prices have been following gasoline’s lead lately and futures are still 6 cents above their lows for the year, spot prices in New York, Houston, and LA are all nominally trading at their lowest levels in 15-months this morning.

Meanwhile, you’d never guess that spot prices were so low if you just looked at rack prices across the southwestern US, where refinery maintenance and tight pipeline capacity has racks in El Paso, Albuquerque, Phoenix, and Las Vegas all still pricing in premiums of close to $1/gallon to their spot markets. Those tight supplies and huge price spreads are making long-haul options suddenly attractive, particularly now that carriers who had been facing driver shortages for years are suddenly finding themselves looking for ways to fill up their schedules.  

We’re in a freight recession” JB Hunt offered the latest harsh warning for those hoping for a quick rebound in diesel demand while explaining the slump in the carrier's revenue and profits.  The silver lining in that statement is they are seeing prices start to level out after the sharp drop as demand for over the road deliveries for a variety of reasons. 

The interesting part of the diesel slump is that it’s not appearing to impact gasoline demand nearly as much, in a sign that we’re seeing consumers switching back to travel and events, after years of retail therapy while stuck at home caused a surge in trucking and diesel demand to meet package delivery needs. A big question for the next few months is whether or not this translates into a busy driving season, or if the diesel/trucking slump is the latest warning sign of the recession that just about everyone has been talking about for the past year. 

The API reported crude oil stocks dropped by 2.7 million barrels last week, despite another SPR sale of 1.6 million barrels, while gasoline stocks dropped by 1 million barrels and diesel dropped by 1.9 million. The EIA’s report is due out at its normal time this morning.

A Financial Times article this morning notes that India has overtaken China as the world’s most populous country with more than 1.428 billion people. For perspective, that’s a billion more people than are in the US. The outlook for China’s population declines due to decades of the one-child policy has numerous geopolitical and economic implications, not least of which is its status as the world’s largest oil buyer, while India faces challenges keeping its massive population happy and well supplied via fuel price controls.  

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Market Talk Update 04.19.2023

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Pivotal Week For Price Action
Market TalkWednesday, Jul 17 2024

Energy Markets Are Trying To Find A Price Floor After Gasoline And Crude Oil Staged A Healthy Bounce To Minimize The Heavy Losses

Energy markets are trying to find a price floor after gasoline and crude oil staged a healthy bounce to minimize the heavy losses we saw early in Tuesday’s session. WTI is leading the move higher early Wednesday, up nearly $.90/barrel in the early going, while RBOB prices are up just under a penny.

Diesel continues to look like the weak link in the energy chain both technically and fundamentally. Tuesday the API reported a 4.9 million barrel build in diesel stocks, while gasoline inventories were only up 365,000 barrels, and crude oil stocks declined by more than 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning and it’s likely we’ll see a reduction in oil output and PADD 3 refining runs thanks to shut ins ahead of Hurricane Beryl, but otherwise the storm appears to be a relative non-issue with only 1 notable refining hiccup, that wasn’t even as bad as a midwestern Thunderstorm.

Chicago basis values rallied Tuesday after reports that Exxon had shut down the 250mb/day Joliet refinery following severe storms that knocked out power to the area Sunday. RBOB differentials surged nearly 9 cents on the day, while diesel diffs jumped more than a nickel. With 3 large refineries in close proximity, the Chicago cash market is notoriously volatile if any of those facilities has an upset. Back in May there was a one-day spike in gasoline basis of more than 50 cents/gallon after Joliet had an operating upset so don’t be surprised if there are bigger swings this week if the facility doesn’t come back online quickly.

Moving in the opposite direction, California basis values are heading the opposite direction with the transition to August scheduling pressuring CARBOB differentials in LA and San Francisco to their biggest discounts to prompt RBOB futures in more than 18 months. Gasoline imports into PADD 5 have held well above average levels over the past 2 months, which has more than offset the loss of the P66 Rodeo refinery’s output after it completed its conversion to RD production, in another sign of how growing refining capacity in China and other Asian countries may become more influential to the US. California regulators may also pat themselves on the back that their new plans to force refineries to report their gross profit monthly, in addition to the rules requiring all bulk trades in the state be reported must be driving the lower gasoline differentials, assuming they figure out what a basis differential is.

Meanwhile, California’s Carbon Allowance values have tumbled to their lowest levels in a year after a CARB presentation last week suggested the agency would be delaying long-anticipated tightening of the Cap and Trade program until 2026.

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

Pivotal Week For Price Action
Market TalkTuesday, Jul 16 2024

The Sell-Off In Energy Markets Continues, With Refined Products Reaching Their Lowest Levels In A Month Early In Tuesday’s Session

The sell-off in energy markets continues, with refined products reaching their lowest levels in a month early in Tuesday’s session. Reports of slowing growth in China, the world’s largest oil purchaser, is getting much of the credit for the slide in prices so far this week, although that doesn’t do much to explain why refined products are outpacing the drop in crude.

ULSD futures are leading the early move lower, trading down a nickel on the day, and marking a 19 cent drop since July 4th. There’s not much in the way of technical support for ULSD, so don’t be surprised if this sell-off continues to pick up steam.

With today’s slide, RBOB futures are down 17 cents from where they were trading on July 4th, and are just a couple of cents from testing their 200-day moving average. Should that support break, it looks like there’s a good chance to test the June lows around $2.29.

Physical markets are not offering any strength to the futures market with all 6 of the major cash markets for diesel across the US trading at a discount to ULSD futures, while only 1 gasoline market is trading at a premium to RBOB futures. That combination of weakness in futures and cash markets is going to be troubling for refiners who are seeing margins reduce during what is traditionally a strong time of year.

The EIA highlighted the energy trade between the US and Mexico in a report Monday, showing that despite so many claims of energy independence from Mexican officials, the actual amount of refined fuels and natural gas bought from the US continues to increase. That’s good news for many US refiners who have become more dependent on Mexican purchases to find a home for their output.

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