The Latest Bubble In Diesel Prices Looks Like It May Have Popped This Week

The latest bubble in diesel prices looks like it may have popped this week as November ULSD futures have dropped more than 30 cents after touching a fresh high for October early in Tuesday’s session. Refinery restarts seem to be a major contributor to the pullback in distillates, while crude oil and gasoline are ticking modestly higher to start the day.

Exxon reported that restart of its 2 French refineries is underway after their strikes were resolved late last week, but it could take 2-3 weeks to get those plants back up to full speed.  Total’s refineries remain closed but their union employees have just agreed to terms on restart this morning, so those efforts should begin soon. 

NY Harbor ULSD Prices look like they may have made the turn towards normal as both basis values and time spreads have seen some modest selling pressure over the past 24 hours after the 2nd biggest rally on record. The restart of the French refineries from their unexpected downtime, along with a couple of East Coast plants ramping up after planned maintenance both seem like they could help this trend continue, with the wild card being how many, if any, cargoes were locked in for delivery to take advantage of that spike. 

Midwestern diesel values look like they may attempt to take over the most expensive in the nation status as the peak of harvest demand season has pushed differentials north of 40 cents/gallon vs the November futures, which is 50-75 cents above the cash markets that are already transitioning to trading vs December futures.

Tuesday’s reports that the President would announce another (relatively small) release from the SPR got credit for some of the selling that took place, although as details emerged, the barrels announced were actually part of the original 180 million barrel released announced earlier this year, as it’s taking longer than expected to get those barrels to the market.   Meanwhile, the actual announcement is expected later today on what they’ll try to do to cool prices.  

The API reported inventory draws across the board last week with crude stocks down 1.3 million barrels, distillates down 1 and gasoline down 2 million barrels. The crude oil decline is a sign of US production stagnating and the SPR releases slowing, which may foreshadow more of what’s to come once those SPR releases finally end.  Read this note from the Financial Times on why the rise of passive investors could be contributing to the lackluster drilling activity in the US. The DOE’s weekly report is due out at its normal time this morning.

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