Momentum Is Waning In Refined Product Markets

Momentum is waning in refined product markets this week after prices stalled out early Monday and are slipping modestly lower again this morning. While the pullback of 5-6 cents from the 7 year highs set early Monday morning are noteworthy, we’ll need to see prices drop another 7-8 cents in the coming days before they threaten the bullish trend lines that have been in place since the August pullback. In other words, so far this week’s selling looks more like a correction to an overbought market, rather than a reversal of that upward trend.
While refined products are struggling, both WTI and Brent are moving higher this morning, putting downward pressure on crack spreads. Unfortunately for refiners, there’s a double whammy on their margins this week as RIN values reached their highest settlement in nearly 6 weeks yesterday, even though RIN values and crack spreads often move in the same direction.
Keep an eye on calendar spreads this week, as severe backwardation in futures that’s steadily grown over the past month’s rally seems to be having strong influence on regional cash markets and inventory levels. What we’re seeing today in the RBOB market, with November prices down a penny more than February values, could be a sign of what’s to come once the supply squeeze has passed. For both ULSD and RBOB, we could see 5-10 cents price drops in front month values just to get the curve back to a more normal level.
This phenomenon is perhaps most glaring in the Group 3 diesel market, where basis values for ULSD dropped to 8 cents below futures, a level we’re used to seeing during the demand doldrums in winter, not during the peak of harvest season where we are today. The weakness in Midwestern diesel values seems to be trickling down to the gulf coast, as shippers will want to avoid moving barrels north to sell at a net loss, which should eventually correct the pricing mismatch.
An EIA report this morning highlights how improvements in drilling and well completion over the past decade allow for more oil to be produced in the Permian basin with lower costs. Meanwhile, the EIA’s monthly drilling rig report highlights that output per rig is forecast to drop slightly in the coming month as producers sacrifice efficiency during the restart race, but total output is expected to continue climbing along with the drilling rig count.
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Week 48 - US DOE Inventory Recap

The API Reported Gasoline Inventories Dropped By 898,000 Barrels Last Week
Gasoline and oil prices are attempting to rally for a 2nd straight day, a day ahead of the delayed OPEC meeting, while diesel prices are slipping back into the red following Tuesday’s strong showing.
The API reported gasoline inventories dropped by 898,000 barrels last week, crude inventories declined by 817,000 barrels while distillates saw an increase of 2.8 million barrels. Those inventory stats help explain the early increases for RBOB and WTI while ULSD is trading lower. The DOE’s weekly report is due out at its normal time this morning.
A severe storm on the Black Sea is disrupting roughly 2% of the world’s daily oil output and is getting some credit for the bounce in futures, although early reports suggest that this will be a short-lived event.
Chevron reported that its Richmond CA refinery was back online after a power outage Monday night. San Francisco spot diesel basis values rallied more than a dime Tuesday after a big drop on Monday following the news of that refinery being knocked offline.
Just a few days after Scotland’s only refinery announced it would close in 2025, Exxon touted its newest refinery expansion project in the UK Tuesday, with a video detailing how it was ramping up diesel production to reduce imports and possibly allow for SAF production down the road at its Fawley facility.
Ethanol prices continue to slump this week, reaching a 2-year low despite the bounce in gasoline prices as corn values dropped to a 3-year low, and the White House appears to be delaying efforts to shift to E15 in an election year.
Click here to download a PDF of today's TACenergy Market Talk.

Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
Click here to download a PDF of today's TACenergy Market Talk.