Energy Markets Rebound After Rout: Diesel Surges, Gasoline Lags

Diesel futures are attempting to lead the energy complex higher for a 2nd day after the largest 2 day selloff in 2 years to start the week. Equity markets are pointing higher to start the day with some U.S. indices hovering at or near record highs as the fears of both trade and shooting wars both seem to have subsided for now.

RBOB futures continue to lag behind ULSD as PADD 1 gasoline stocks are holding well above levels we’ve seen the past 2 years, despite a jump in demand last week, while diesel inventories are running below the bottom end of their 5 year seasonal range which helped diesel futures outpace gasoline ever since yesterday’s DOE report.

Fake News. The WSJ and its affiliates at OPIS reported that Shell was in talks to buy BP Wednesday, while other news outlets reported that wasn’t true. Shell issued a statement this morning saying is has not been actively considering an offer and no talks have taken place with BP. It’s worth noting that if Shell changed its mind down the road, because of that statement made this morning they’d have to wait 6 months to make an offer due to UK rules on takeovers and mergers.

7 California senators proposed a bill that would cap the cost of LCFS credits and potentially change the specs on CARBOB gasoline to be less restrictive. The surprising part of the proposal is that it was made by democrats, who appear to be coming to terms with the state’s rapidly declining capacity putting consumers and politicians both in a tenuous position. Meanwhile the OAL’s decision on CARB’s proposal to make LCFS credits more expensive is expected by Monday, with the new targets proposed to take effect July 1. Both LCFS and CCA credit prices increased Wednesday after LCFS values had initially pulled back following the senate bill announcement.

Total reported a 2nd upset in as many days at its Port Arthur refinery caused by a failed pressure indicator that tripped a lube oil system offline. Both events came shortly after a 3rd round of flooding rains swept the area in the past month, but no other upsets have been reported at the handful of large refineries nearby this week.

Delek reported another upset at its Big Spring TX (Alon) refinery Wednesday morning on an FCC unit after an equipment malfunction forced the refinery to adjust operating rates to minimize the emissions.

More commentary on the DOE’s weekly status report.

Following an 11mm barrel drop the week prior, crude stocks slid another ~6mm barrels to hit the bottom end of its seasonal 5-year range, 46mm barrels off year ago levels. Refinery runs increased in PADDs 1 & 2 and stay well ahead of seasonal norms while rates were unchanged or dropped slightly elsewhere, keeping total U.S. run rates at high levels. The LyondellBasell Houston refinery shut down is finally showing in the weekly capacity figures after the annual refining report was published earlier this month. The EIA reported a 257,000 barrel per day drop in PADD 3 capacity for the week dropping total U.S. refining capacity well below its 5-year average despite a slight increase in PADD 5.

Diesel stocks drew across all PADDs on exports surging to a 2025 high. With PADD 4 dipping last week, all PADDs are back below average storage levels, holding the total U.S. count under its 5-year range for a 7th consecutive week. Gasoline stocks drew heavily in PADD 3, but the impact was halved by the build in PADD 1 for a total 2mm barrel decline as demand bounced to a 2025 high. The 4mm barrel drop in PADD 3 sent stockpiles from slightly above average to just below their 5-year seasonal range week to week. Total gas stocks are still wedged between the previous two years, both of which ran below the 5-year average through the summer months as the impact of COVID’s lost summer still lingers in the charts.

Demand estimates for both gasoline and diesel both ticked higher last week, which wasn’t too surprising given some of the “stockpiling” activity witnessed at racks across the country as many buyers tried to stuff tanks “just in case” the U.S. attacked Iran, and then regretted it a few days later when prices tanked. That phenomenon could lead to a big drop in demand estimates next week that pushes product inventories higher, although the weekly demand stats are notoriously unreliable.