Refined Products Are Treading Water This Morning As The Market Continues To Cool Its Heels After Last Week’s Big Rally

Refined products are treading water this morning as the market continues to cool its heels after last week’s big rally. Gasoline prices are hovering near breakeven after 2 straight up days, while ULSD futures are seeing modest declines in what would be a 3rd straight day of losses to follow 5 straight days of increases.

It’s not just refined products that are seeing a diverging path this week: WTI is trading higher for an 8th consecutive session, while natural gas is trading lower for an 8th day, reaching a 3.5 year low in the process. In some ways, natural gas prices are being pushed lower by crude, since the record high production of oil in the US is also coming with an excess production of gas, while record warm temperatures this winter put a big damper on demand. 

The weakness in natural gas markets also seems to be spilling into ULSD prices, particularly after the Nor’easter that slammed the East Coast yesterday moved through the area quickly and didn’t lead to any gas curtailments that would cause diesel demand to spike near term.  That lack of heating demand also helps explain the sharp pullback in diesel spreads this week after a sharp rally when the first forecasts for that storm came out last week.

Natural gas is also featuring in the latest Middle Eastern violence after one of Iran’s major gas pipeline systems was targeted in a series of “terrorist” attacks.

OPEC continues to sound bullish in its latest monthly oil market report, noting that while global growth remains below pre-pandemic levels, economic activity surpassed expectations last year and they predict that trend to continue as inflation eases in the world’s major economies. 

The report also noted a huge divergence in clean product tanker rates depending on which side of the Red Sea you’re on, with East of Suez rates surging 45%, while West of Suez dropped by 10%. Sour crude grades were also increasing due to the Red Sea shipping disruptions reducing the options for Asian Pacific buyers.

OPEC’s oil output dropped by 350mb/day during January with large decreases from Libya, Kuwait and Iraq offsetting small increases from Saudi Arabia and the UAE.

The API reported healthy draws in refined product inventories last week with gasoline stocks down 7 million barrels and diesel down 4 million barrels. Crude oil stocks rose by more than 8 million barrels on the week, with roughly half of that gain accounted for by the shutdown of BP’s Whiting refinery that’s reached almost 2 weeks. The EIA’s weekly status report is due out at its normal time this morning and will be delayed by President’s day next week. 

Chevron and PBF dropped lawsuits and agreed to comply with San Francisco Bay-Area regulators on a plan to reduce particulate pollution starting in July 2026. Expectations are that both facilities will install wet gas scrubbers to comply with the ruling, rather than convert their operations as 2 other Bay-Area refineries have done recently.

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