It’s A Quiet Start To Trading As The 2nd Quarter Of 2023 Winds Down
It’s a quiet start to trading as the 2nd quarter of 2023 winds down, with many already looking ahead to a long holiday weekend. While most energy contracts are poised to finish the month higher, they’re still lower than they were at the end of Q1, with plenty of work to be done if the bulls are going to regain control. Diesel futures are down $1.50/gallon from this time last year, while gasoline futures are down more than $1 and the charts continue to send mixed signals for what’s ahead.
Almost all trading has shifted away from the expiring July RBOB and ULSD contracts, so look to the August figures for direction today if your market hasn’t already rolled.
See the holiday calendar below for a recap of who is and isn’t open to start next week. Monday will be particularly confusing for rack pricing as the Nymex and OPIS both have normal publishing plans but Argus and Platts will both be closed.
The East Coast continues to show signs that physical supply is tightening up after a relatively relaxed spring. Colonial line 1 premiums jumped back into positive territory as gasoline values in NYH relative to the Gulf Coast have gained 10 cents/gallon over the past 10 days. Distillates are seeing strength as well with NYH spots now going for nearly 20 cents/gallon more than the Chicago market and 7 cents above the Gulf Coast.
The West Coast is also seeing strength, with gasoline and diesel basis in California seeing healthy gains this week following multiple refinery upsets. The strength is primarily focused in the LA area, with CARB diesel premiums hitting their highest levels since February yesterday.
The 4th largest refinery in the US continues to struggle, reporting 2 more-unit upsets to regulators Thursday, just 2 days after a chemical leak sparked a shelter in place and less than 2 months after a deadly fire. Gulf Coast basis markets continue to shrug off this news with basis values not making any perceived moves due to those upsets while regional inventories remain at average levels even though exports remain robust.
Ethanol RINs (D6) have recovered the losses they took after the EPA announced it was lowering its de-facto ethanol blending requirements for the next two years, even though outright ethanol prices have dropped by more than 20 cents/gallon in the past 3 days, which are following a sharp drop off in corn and other grain prices as drought fears across the Midwest seem to be coming to an end. D4 RINs are now trading essentially flat to D6 RINs, a far cry from the 20 cent premiums they carried for much of last year, thanks to the rapid influx of new renewable diesel production. Of course, even though the RIN values are the same, the total value for RD production is much higher as each gallon produced generates 1.7 RINs, vs 1.5 for biodiesel and 1 for ethanol.
The EPA announced new rules to prevent PFAS chemicals to enter the marketplace. That new framework could be another nail in the coffin of the beleaguered Suncor refinery near Denver, as a new report notes a spike in PFAS from that facility in May, adding to the comedy of errors experienced by that company over the past year.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllThe Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.
The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.
We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.
The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.
Click here to download a PDF of today's TACenergy Market Talk.
Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.
There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.
As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.
Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.