Gasoline Prices Have Finally Found A Bid, Trading Up 3 Cents On The Day
Gasoline prices have finally found a bid, trading up 3 cents on the day after coming within a penny and a quarter of the multi-month lows set last week overnight. ULSD prices are also up a couple of cents in the early going after wiping out the gains they made last week. Both contracts are once again threatening a technical breakdown that could push prices another 20-30 cents lower if the current bounce isn’t sustained.
The EIA’s estimate for gasoline demand surged to a 7-month high last week, capping off a 4th straight week of gains that puts total consumption near the top end of the seasonal range after a very sluggish start to the year. AAA estimates that travel this Memorial Day weekend will approach a 20 year high with nearly 44 million people hitting the roads.
The EIA also published a note this morning showing average US gasoline prices are up 1% from last year, accompanied by a chart showing that average prices are down 7 cents/gallon from this time last year. The spread between retail gasoline prices on the West Coast vs the rest of the country continues to grow and is shown to be over $1.20/gallon thanks to Oregon and Washington’s Californication of their energy policies in recent years.
The EIA still seems to be struggling to figure out its accounting methods for crude oil inventories, with the adjustment factor that’s been creating all sorts of confusion the past couple of years flipping from a negative 200,000 barrels/day last week, to a positive 1.4 million barrels/day this week. You could give the EIA compilation crew a break and say that this reflects just how large and complex the US crude oil supply network is, or you could ask how did they suddenly “find” 10-million barrels of oil that they didn’t see last week.
Refiners are cranking up run rates, exceeding the levels we’ve seen this time of year in either of the past 2 years. Those higher run rates are added to the glut of diesel products that’s hanging over the majority of the country, and pushing rack spreads to levels we haven’t seen since the COVID lockdown in several markets.
The export market for US crude and refined products remains very busy with nearly 10 million barrels shipped out of the country every day. Refinery throughput was 16.2 million barrels/day last week, and more than 6 million barrels/day was exported even though gasoline and diesel exports have stagnated this year. The anticipated tick higher in US diesel exports following the rash of Russian refinery attacks has not materialized, which is no doubt contributing to the negative sentiment for diesel prices over the past month. The busy and growing export market for crude and other products also creates an interesting dynamic as we prepare for a busy hurricane season to kick off in a week as any disruption to infrastructure along the Gulf Coast could limit product going out of the country almost as much as it disrupts products flowing inland.
Basis values for RBOB in Chicago dropped 30 cents Wednesday after Tuesday’s 60 cent spike. It’s still unclear what if any impacts the confirmed fire at Exxon’s Joliet refinery, or the rumored upsets at BP’s Whiting facility have had on actual supply in the region, but the quick pullback suggests this is a flash in the pan rather than the start of a prolonged supply shortage.
Exxon reported a leak at its Beaumont TX Chemical plant, but it appears that upset isn’t impacting the operations at its adjacent refinery.
News & Views
View AllEnergy Futures Are Caught Up In Headline Tug-O-War This Morning
Energy futures are caught up in headline tug-o-war this morning with Canadian oil production concerns and a positive US GDP report trying to push prices higher while sinking Chinese demand worries and Gaza ceasefire hopes are applying downward pressure. The latter two seem to be favored more so far this morning with WTI and Brent crude oil futures down ~45 cents per barrel, while gasoline and diesel prices are down about half a cent and two cents, respectively.
No news is good news? Chicago gasoline prices dropped nearly 30 cents yesterday, despite there not being any update on Exxon’s Joliet refinery after further damage was discovered Wednesday. Its tough to say if traders have realized the supply situation isn’t as bad as originally thought or if this historically volatile market is just being itself (aka ‘Chicago being Chicago’).
The rain isn’t letting up along the Texas Gulf Coast today and is forecasted to carry on through the weekend. While much of the greater Houston area is under flood watch, only two refineries are within the (more serious) flood warning area: Marathon’s Galveston Bay and Valero’s Texas City refineries. However, notification that more work is needed at Phillip’s 66 Borger refinery (up in the panhandle) is the only filing we’ve seen come through the TECQ, so far.
Premiums over the tariff on Colonial’s Line 1 (aka linespace value) returned to zero yesterday, and actually traded in the negatives, after its extended run of positive values atypical of this time of year. Line 1’s counterpart, Line 2, which carries distillates from Houston to Greensboro NC, has traded at a discount so far this year, due to the healthy, if not over-, supply of diesel along the eastern seaboard.
Click here to download a PDF of today's TACenergy Market Talk.
WTI And Brent Crude Oil Futures Are Trading ~$1.50 Per Barrel Lower In Pre-Market Trading
The across-the-board drawdown in national energy stockpiles, as reported by the Department of Energy yesterday, stoked bullish sentiment Wednesday and prompt month gasoline, diesel, and crude oil futures published gains on the day. Those gains are being given back this morning.
The surprise rate cut by the People’s Bank of China is being blamed for the selling we are seeing in energy markets this morning. While the interest rate drop in both short- and medium-term loans won’t likely affect energy prices outright, the concern lies in the overall economic health of the world’s second largest economy and crude oil consumer. Prompt month WTI and Brent crude oil futures are trading ~$1.50 per barrel lower in pre-market trading, gasoline and diesel are following suit, shaving off .0400-.0450 per gallon.
Chicagoland RBOB has maintained its 60-cent premium over New York prices through this morning and shows no sign of coming down any time soon. Quite the opposite in fact: the storm damage, which knocked Exxon Mobil’s Joliet refinery offline on 7/15, seems to be more extensive than initially thought, potentially extending the repair time and pushing back the expected return date.
There are three main refineries that feed the Chicago market, the impact from one of them shutting down abruptly can be seen in the charts derived from aforementioned data published by the DOE. Refinery throughput in PADD 2 dropped 183,000 barrels per day, driving gasoline stockpiles in the area down to a new 5-year seasonal low.
While it seems all is quiet on the Atlantic front (for now), America’s Refineryland is forecasted to receive non-stop rain and thunderstorms for the next four days. While it may not be as dramatic as a hurricane, flooding and power outages can shut down refineries, and cities for that matter, all the same, as we learned from Beryl.