Diesel Prices Are Making Another Rally Attempt Tuesday, After RBOB Gasoline Futures Won The Tug Of War In Monday’s Session

Market TalkTue, Nov 15, 2022
Diesel Prices Are Making Another Rally Attempt Tuesday, After RBOB Gasoline Futures Won The Tug Of War In Monday’s Session

Diesel prices are making another rally attempt Tuesday, after RBOB gasoline futures won the tug of war in Monday’s session, ending the day at their lowest level in a month, and pulling ULSD lower in the process. WTI also traded sharply lower Monday, and is trading at a 3 week low this morning.

Demand concerns continue to weigh on crude and gasoline prices, with the IEA’s monthly oil report echoing the other agencies in predicting sharply lower consumption over the next 12 months. Just like OPEC and the EIA in the past week, the IEA’s forecast highlights the impact of China’s COVID policy, the energy crisis in Europe and a stronger dollar as headwinds to global consumption.

Supply concerns remain the driving force for distillates, with the IEA noting that competition for non-Russian diesel will be fierce as new embargos and shipping restrictions take effect this winter. 2.7 million barrels/day of new refining capacity is expected to come online through the end of 2023, but the vast majority of that is in the Middle East and Asia, which means shipping options will be stretched even further to alleviate shortages in the Atlantic basin.

Speaking of which, the Freeport facility that used to account for roughly 15% of US LNG exports will miss its restart target after a fire shut the facility in June. That news sent European natural gas prices rallying once again, while US prices dipped as more supply is unable to move overseas. 

NY Harbor ULSD prices continued their return to earth Monday, trading down to a 50 cent premium to December futures, a 75 cent decrease from the highs set last week. Even with that pullback, distillates in the North East remain the most expensive in the country by a wide margin, and continue to encourage shippers to move incremental barrels away from other markets.

Money managers made healthy increases to their net length in NYMEX contracts last week with a combination of new bets on higher prices and short covering. Open interest continues to hold near multi-year lows for all contracts, while ULSD dropped to a fresh 6 year low last week.

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Diesel Prices Are Making Another Rally Attempt Tuesday, After RBOB Gasoline Futures Won The Tug Of War In Monday’s Session