Energy Prices Are Surging To Start Friday The 13th With ULSD Up 13 Cents
Here we go again. Energy prices are surging to start Friday the 13th with ULSD up 13 cents, gasoline up 7, and crude oil up nearly $4/barrel after Israel told more than a million people to leave Gaza, which increases the risk of escalation with neighboring nations. A similar fear trade dominated Monday’s early trading, only to fade quickly as no signs of actual supply disruptions emerged, although the threat of retaliation from nearby countries – several of whom also happen to be among the largest oil producers in the world – are very real given the long sordid history of conflict in the region.
Adding to the concerns about oil supply, the US imposed the first sanctions on two tankers carrying Russian crude oil above the $60 price cap, which threatens to once again disrupt trade flows as some analysts suggest most Russian exports are going for prices well above the cap.
Natural gas futures have also been rallying, with the European TTF contract up more than 40% on the week, although they’re still a far cry from the levels we saw last year. A WSJ article this morning highlights how oil supplies have capacity to offset a disruption, but the natural gas market does not.
Yesterday’s DOE report showed US refiners are still hard at work in the busiest turnaround season in the past 4 years, which helped drive a large increase in total US crude oil inventories even as Cushing stocks continued their slow decline towards irrelevancy. US Oil output surged to a new record high at 13.2 million barrels/day as US producers continue to figure out ways to do more with less.
Gasoline fundamentals looked a bit stronger this week thanks to a bounce back in consumption after the prior week’s dismal figure, and a tick higher in exports. Gasoline crack spreads have been getting pummeled over the past 2 months, and in some spot markets are trading around break-even levels, which suggests some refiners may be in for tough sledding as we approach the end of the fall maintenance season and the start of the winter demand doldrums.
The diesel demand estimate dropped for a 3rd straight week and is below the 5-year seasonal range, meaning the EIA is estimating less diesel consumption today than 3 years ago during COVID. It’s still unclear how the EIA is capturing renewable diesel figures in its weekly report however, so it’s very likely that the West Coast inventories are understated, and total consumption along with them as that “new” product simply isn’t being captured on the government forms. Meanwhile, west coast diesel stocks saw a big increase last week thanks to a surge in PADD 5 imports, which was foreshadowed by the big declines in diesel basis values earlier in the week.
Marathon’s Texas City (aka Galveston Bay) refinery was forced to shut down several units due to a power outage this week, extending the streak of consecutive weeks with an upset at the facility that’s faced numerous issues since a deadly fire back in May. Valero’s facility in Texas City was also impacted by that power outage, although its report to TX regulators suggested little impact from the event.