April Energy Futures Struggle To Finish Strong, Diesel Demand Remains Soft

Energy futures are stumbling to the finish line with just 2 days left in April trading and most contracts hovering around their lowest levels of the month. 

US Oil inventories fell for a 4th week out of 5, despite more barrels being taken out of the SPR, and the EIA finding another 8 million barrels of oil in their adjustment figure last week.  Refinery runs and oil exports remain strong, and the oil production estimate dipped last week, which all contributed to that draw in stocks.

RBOB futures did see a healthy rebound off of their lows Wednesday after the EIA reported a strong demand estimate that helped pull inventories lower last week. That recovery bounce was short lived however and RBOB prices find themselves teetering on the edge of their weekly trend line once again this morning, and poised to drop below it once the June contract takes the prompt position next week, unless we get a nickel or more bounce in the last two days of trading for the month.

Diesel demand estimates continue to be very soft, consistent with the steady drumbeat of “freight recession” warnings that have been issued in recent weeks. While refiners are likely to report record earnings for a first quarter this week, that soft outlook for diesel, and the recent collapse in crack spreads that’s come with it, have created a much different outlook for the balance of the year.

ULSD prices have dropped to their lowest level since the first day of trading in 2022, with several spot markets reaching their lowest levels since December of 2021, despite the fact that diesel inventories remain at the bottom end of their seasonal range across all 5 PADDs included in the report. The PADD 5 figure is the most misleading however as the EIA figures are not yet capturing the rapid influx of renewable diesel into these figures, so actual commercial diesel inventories will be higher than the official figures.  

The EIA’s latest report on Biodiesel and Renewable diesel inventories showed a record high of 7.8 million barrels of combined inventory in the US as of January, but it does not break out biodiesel and RD stocks. It seems inevitable that the EIA will eventually include RD inventories in their weekly figures as they do with ethanol, particularly now that RD is moving along major pipeline systems in California, but that could still be years away given the glacial speed in which government agencies tend to move.

Speaking of which, you may note that PADD 3 refinery utilization rates look abnormally high.  You’d be correct in that assessment since the EIA’s data continues to report the actual output generated by Exxon’s new 250mb/day expansion in Beaumont but won’t report that as actual refining capacity which is artificially inflating the percentage utilization.

Side note, did you know there are actually 7 PADDs but the EIA doesn’t include 6 and 7 in its weekly reports? Also, did you know that a US congressperson once worried that one of PADD 7s islands might tip over and capsize? Can’t make that stuff up.

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