ULSD Futures Are Leading The Energy Complex In A Modest Recovery Bounce To Start Wednesday’s Session

After a 4-day slide that knocked more than 20 cents off of prompt values, ULSD Futures are leading the energy complex in a modest recovery bounce to start Wednesday’s session.   While the pullback has ended the chance of a near term rally to $3.50, as long as diesel futures can hold above the $3 mark there’s still an argument that there’s more upside to come as we approach the fall. 

Gasoline prices are treading water so far, and face seasonal headwinds with just a couple of weeks left in the driving system and the fall RVP blend down looming. The September RBOB contract was testing support at the trend-line that helped push prices up more than 50 cents/gallon since July 4th this morning and managed to bounce 4 cents off of those lows. If that trend line breaks, there’s a good chance we’ll see a 20-cent slide before month end, when we’ll see another 20+ cent drop as the October futures take over the prompt position.

The API reported a draw in crude oil inventories of 6 million barrels last week, while refined products saw small changes of less than 1 million barrels each on the week. The draw in crude is consistent with an expected recovery in oil exports after a big drop last week believed to be just timing issues on cargo loading rather than a shift in international demand, which has remained strong this year. The DOE/EIA’s weekly report is due out at its normal time this morning.

Are you wondering why diesel prices in Chicago are trading 15-20 cents below neighboring markets? The EIA has an answer for you, highlighting the rapid rise in Midwestern inventories this summer as refineries raised production without having the export options of their coastal counterparts.

The tropics are heating up. The NHC is now tracking 3 potential storm systems in the Atlantic basin. The first two over the eastern Atlantic have increased their odds of development over the past 24 hours and are now given 40-50% probability to be named in the coming week. The good news is both look like they should be moving far enough north to minimize a threat to the US. The third system is given 20% odds of developing in the Western Gulf of Mexico this week, near the heart of refinery row. You know it’s been a hot summer when the first thought about a potential tropical storm system hitting your state is “oh good, maybe that will cool things down”.

What’s in a name?  Later today the White House is going to hold a press conference to mark the 1-year anniversary of the “inflation production reduction act” that is handing out billions of dollars in tax credits to promote more spending on electric vehicles and other projects to try and promote cleaner energy options. Big Oil companies have been some of the largest beneficiaries of the act, as they were the only businesses with “shovel ready” projects in the carbon capture and sequestration space, in addition to those retooling refineries to produce renewables. When asked about the confusing name of the spending bill last week the President said, "I wish I hadn’t called it that because it has less to do with reducing inflation than it has to do with providing alternatives that generate economic growth,"

HF Sinclair announced it was buying out the remaining shares in its midstream spin-off Holly Energy Partners, the latest MLP to disappear thanks to the higher interest rate environment that makes those investment vehicles less attractive than they were during the days of free money.

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