Many Suggest We’re Due To See Another Slowdown In Economic Activity To End The Year
Diesel prices staged another big rally Tuesday, with the October ULSD contract adding more than 11 cents from Friday’s settlement before giving back some of those gains overnight. Brent crude prices broke the $90 mark and WTI reached $88 for the first time since November following reports that Saudi Arabia and Russia would extend their voluntary output cuts.
A WSJ article highlights why the types of crude being held out of circulation are causing diesel prices to rally and offering a harsh reminder that we’re just one cold snap away from facing another supply shortage.
A Reuters article this morning highlights that consumers had enjoyed lower fuel prices than a year ago for most of 2023, but are now paying more and California drivers are once again staring at record high prices, which many suggest is yet another reason we’re due to see another slowdown in economic activity to end the year.
Tropical Storm Lee has formed and is expected to become a major hurricane in the next few days and approach the East Coast of the US next week. Most early forecast models have the storm hooking north just in time to stay off-shore, but there is plenty of uncertainty in those early projections and not much margin for error, so expect this system to stay front and center in the news the remainder of the week as it could still become a major threat to the East Coast population centers. There is another storm system given 60% odds of forming behind Lee, but this storm is expected to form far enough north that it won’t be a threat to land.
The timing of Lee’s approach to the East Coast will make a congressional move to liquidate the East Coast gasoline reserve more controversial than it otherwise might be.
RIN values have moved sharply lower in recent weeks, with D4 values dropping more than a nickel reaching an 18-month low in the low $1.30s Tuesday. RBN Energy has been beating the drum for some time that the rapid increase in Renewable Diesel production would eventually lead to a rapid decline in RIN values, and it appears we may be witnessing that now.
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.