Diverging Price Moves Have Been The Major Trading Theme Of The Past 24 Hours/ West Coast Differentials Are Spiking

Diverging price moves have been the major trading theme of the past 24 hours with ULSD futures bouncing 13 cents off of Thursday’s lows, while RBOB futures have dropped 11 cents from their Thursday high.  At the time of this writing, ULSD prices were just ½ cent below where they ended last Friday, and if they can settle above $3.1215 today, they’ll mark an 8th straight week of gains. WTI meanwhile is more than $3/barrel below its settlement level from last week, making it highly unlikely that the streak will continue for crude oil. 

Within the gasoline space we’re also seeing wildly diverging cash prices, with Midwestern differentials continuing to slide, adding to the big drop in futures, while West Coast basis differentials are spiking to premiums 60 cents above September Futures as refinery upsets are causing a short squeeze on summer-grade fuels.  

There’s a strong chance we will continue to see differentials continue to spike next week as the West Coast rolls to September delivery cycles pricing against the October futures contract which pegs summer-rvp physical products vs the winter-grade futures that 20+ cents cheaper than current values. This run-up in basis values marks the first real test for California’s new commission to oversee market behavior that has forced refiners and marketers to report their trading activity daily starting in July. Given the price action so far, the new committee touted to stop price gouging doesn’t seem to be having the intended effect. 

Ethanol prices have dropped to an 18 month low this week on the back of weaker corn prices, that are trading at their lowest levels since the fall of 2020. The US announced Thursday it was seeking a dispute settlement panel under the North American trade act to stop Mexico from blocking genetically modified corn imports. If arbitrators' rule in favor of the US, it doesn’t necessarily mean more corn exports will flow south of the border, but it will give the US the ability to impose punitive tariffs on Mexican goods, which doesn’t sound like something that will help reduce inflation.

The Weather Channel is going to see ratings increase from the energy over the coming week. Hurricane Hilary rapidly intensified to a category 4 storm overnight with 140mph winds as it approached the Baha peninsula.  If Hilary ends up making landfall in California, it would be the first tropical storm to land in the state in 84 years. To get a feel for how widespread the impacts of this storm could be, note that flash flood watches from this system extend across 11 states all the way from California and neighboring states to Montana, North Dakota and even Western Minnesota.

Meanwhile, the NHC is now tracking 4 possible storm systems in the Atlantic, with one of those systems now given 70% odds of being named next week. The good news is the two systems on the western end that look like they could get into the Gulf of Mexico and become an immediate threat to oil production and refining are both still given just 30% odds of developing into a tropical storm or Hurricane. The 2 storms further east both have higher odds, but also look like they’ll continue moving just enough north to keep them out to sea, although there is still a small chance at an East Coast strike from one of these systems. 

The Marathon Refinery in Texas City had yet another upset Wednesday night, reporting multiple units were knocked offline due to a loss of steam from a 3rd party provider.

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