Refined Product Prices Seem To Have Found A Temporary Floor After A Big Selloff To Start The Year

Refined product prices seem to have found a temporary floor after a big selloff to start the year, leaving refined products in the middle of the trading ranges they established in December, and needing to swing at least 20 cents in either direction before breaking out and finding a new path forward. 

This morning’s rally, after trading lower overnight, comes on the heels of the December payroll report which estimated 233,000 jobs were added in the US last month, while the previous 2 months had their estimates lowered by a combined 28,000. The headline unemployment rate dropped to 3.5% while the “U-6” rate dropped to 6.5%. That report seemed to meet the “goldilocks” criteria of not too good that it will encourage the FED to keep raising rates aggressively, but not too bad to show the US economy is falling further into a recession, and was quickly followed with a round of buying in both equity and energy markets.  

It looks like we’ve dodged another supply disruption bullet:Colonial provided an update on its line 3 shutdown Thursday afternoon, saying that the leak near Danville VA has been contained to company property and a restart mid-day on Saturday is still on the schedule. That news was met with a sigh of relief from shippers and a shrug from traders, and may not even make the top 10 list of supply disruptions the industry has dealt with over the past 2 years. 

Yesterday’s DOE report showed the largest weekly drop in US petroleum demand on record, with the estimate plummeting by 20%. For gasoline it was the 2nd worst drop ever, right behind the COVID lockdown collapse, while distillates saw their 4th worst drop on record. The silver lining to those terrible demand estimates is that it coincided with the 4th biggest disruption in refining activity on record, and limited the impact of the outages that hit 4 out of the 5 PADDs.    

The big question as we start the new year is how much of that demand collapse was noise from the weekly data being influenced by so many disruptions in the middle of the holidays, how much was temporary due to the parade of winter storms keeping drivers off the road, and how much is actually a reflection of weaker economic activity. Based on the market behavior to start trading in 2023, there’s a decent amount of money being bet that it’s the latter, which could make this an excellent buying opportunity if it’s not.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.