Early Morning Losses Turned Into Strong Afternoon Gains

After early morning losses turned into strong afternoon gains for refined products Monday, we saw another half-hearted selling attempt Tuesday as prices were down 4-5 cents overnight only to see prompt values turn positive by 7:30am.

Chaotic action in physical markets continues to be a major theme as supply shortages and big swings in price spreads keeps traders on edge. While East Coast diesel prices continue to slide down their backwardation curve, giving up 45 cents in prompt basis values over the past week, gasoline stocks are getting very tight again, driving up the spread between USGC and NYH spot markets, and pushing the premium to ship gasoline along Colonial north of 9 cents/gallon. 

Just as we saw when diesel spreads spiked earlier in October, the refinery disruptions in Europe and subsequent challenges with cargo transportation of refined products are getting the blame for this latest squeeze. This would be yet another case where a Jones Act waiver would make sense to get products from the Gulf Coast where they’re made, to the East Coast where they’re needed.

The NHC is tracking 3 potential tropical systems as we approach the last official month of the hurricane season. None of these systems are given high odds of development, but the two off the US East Coast could further complicate the already disjointed waterborne delivery market for fuel over the next week, while the system in the Caribbean will need to be watched as there is still warm enough water to make for a late season Hurricane.

The head of the IEA spoke at an energy conference in Singapore this week, and highlighted several components of the world’s “first truly global energy crisis”. The speech highlighted the ways that the majority of Russian oil will continue to flow this winter despite sanctions and price caps, the chance of more coordinated SPR releases and why energy security not ESG will be the driver of the transition to renewables. Last week the agency noted that renewable production had surpassed expectations this year, which reduced the outlook for carbon emissions despite many having to return to coal power generation as other options became scarce.

Q3 earnings reports are starting to be released, and no surprise that refiners who were operating are looking at another banner quarter. Q4 is looking even better for many refiners, assuming their plants are running, as USGC 5/3/2 crack spreads have climbed back north of $1/gallon, which is approaching the record setting levels we saw in Q2. 

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