Diesel Rebounds, Gasoline Lags as Floods and Demand Concerns Sour Markets

Diesel prices are taking back the initiative after 2 days of selling, up more than 3 cents on the day and a nickel on the week with low inventories across most of the U.S. keeping upward pressure on both futures and cash prices. WTI is joining in on the rally, up more than 1% in the early going, while gasoline prices are lagging again as signs of flagging demand due to a brutal stretch of weather emerge.

Heavy rains have been hammering large parts of the U.S. with 4 different “1,000 year” flood events happening in the past week. Much of the focus has been on the devastation in the TX hill country, while other major events have also happened in New Mexico, North Carolina and Illinois. While it appears that at least two refineries and 2 terminals were knocked offline due to weather-related power outages and flooding during these events, the larger impact is likely to be on demand as millions have been forced to stay off the roads, exacerbating the typical holiday hangover effect on consumption.

Remnants of Tropical Storm Chantal swept New England Thursday, causing flash flooding that shut down the Braintree Citgo terminal south of Boston, along with parts of I-93. Overnight power losses in the Providence market are also causing headaches at supply terminals in that market, which were receiving some of the overflow from the Braintree downtime. It appears that these facilities should return to normal operation later today which should alleviate the concerns about a supply crunch.

New tariff threats are making headlines again this week, but so far it appears that petroleum supplies will still be exempt from the latest tariff threat levied against Canada, along with other goods covered under the USMCA agreement according to a statement from the White House.

Exxon reported a 2nd upset this week at its 588mb/day Baytown TX refinery. This time a catalytic light ends unit was tripped during maintenance, but that event reportedly has little effect on other operations at the facility.

The Monroe (Delta Airlines Subsidiary) refinery in Trainer PA had an upset Thursday due to a power outage that caused local officials to place “reverse 9-11” calls to area residents to stay inside and turn off their AC to avoid dangerous fumes. The details of that upset, whether it was weather related, or what impacts there may be to production are still unclear and so far NYH basis markets haven’t reacted much to the news.

The IEA is predicting weak global oil demand in its latest monthly update, with only 2020 (COVID slump) and 2009 (great recession) seeing lower rates in the past 2 decades. That soft growth and the easing of OPEC supply restrictions is predicted to lead to more global supply overhang in the back half of the year. That report will no doubt draw the ire of OPEC, who recently skewered the IEA for “finding” demand it had understated for years. OPEC’s monthly report is due out next week.

The Dallas FED this week published a study on the economic impacts of unauthorized immigration to the U.S.. The study highlighted risks that recent policy changes may slow economic growth [and gasoline demand] in the years to come, and seems to be a shot at the administration in the media war between the White House and the central bank.