October ULSD Prices Are Trading Within A Few Points Of A Fresh 8-Month High North Of $3.40/Gallon This Morning

Market TalkWednesday, Sep 13 2023
Pivotal Week For Price Action

After a one-day break, ULSD futures have resumed their march higher and taken back the role as the leader of the energy market with multiple serious weather events contributing to the rally. October ULSD prices are trading within a few points of a fresh 8-month high north of $3.40/gallon this morning, while WTI reached a new high for the year just shy of the $90 mark overnight. 

The disastrous flooding in Libya that has killed more than 6,000 people is being blamed for some of the rally in oil prices as more than 1 million barrels/day of exports are currently shut in. 

The API reported inventory builds across the board last week with gasoline stocks up 4.2 million barrels, diesel up 2.6 million and crude oil stocks up 1.2 million. The DOE/EIA’s weekly report is due out at its normal 9:30 central release time this morning. 

The EIA’s monthly short term energy outlook (STEO) reduced gasoline demand estimates 2% for next year despite an increase in GDP projections from previous reports due to changes in the US census that show more retired-age people who tend to drive less. The report also reduced total liquid fuels consumption in the country as the agency reclassified natural gasoline and unfinished oils as crude oil supply, since those are growing byproducts of oil production that had been artificially inflating the demand estimates for several years.

The report also highlighted the tight diesel supplies along the East Coast as we head into fall and projects a larger than normal decline in inventories next month due to the scheduled refinery turnarounds starting at the Irving and Monroe facilities.

Speaking of Irving, an Energy News Today report Tuesday suggested that the facility was preparing to delay the start of its major maintenance work due to hurricane Lee, which looks like it could make a direct hit on the facility Sunday as a tropical storm. Roughly half of that 320mb/day facility was scheduled to be taken offline for around 6-7 weeks of work starting Sunday, but will now wait until the storm passes to try and avoid having to go through multiple shutdown/restart cycles and to keep vulnerable equipment out of harm’s way. The good news is that the storm that was pushing 165mph sustained winds late last week is only forecast to have winds in the 60-70mph range when it makes landfall, which some New Englanders will classify as just a nice breeze. The bad news is the storm is pushing a huge amount of water into areas vulnerable to storm surge that are already being inundated with regular thunderstorms, so there is still plenty of risk of flooding for communities in its path.   

The family-owned Irving oil company was recently reported to be put up for sale, coinciding with the company losing a 40-year old property tax exemption from the Canadian government, so any impacts from this storm could also influence the decision on what to do with the facility long term. Given the strong years refiners have enjoyed, and the important role this facility plays in supplying the East Coast, it seems hard to imagine this storm could shut down the plant permanently, but then again that’s exactly what Hurricane Ida did to the P66 Alliance facility less than 2 years ago.  

The August CPI report came in +.6% near forecasted levels with headline inflation up 3.7% on the year, while ex Food and Energy prices were up 4.3%. Stocks and energy futures changed little after the report was released, suggesting these figures weren’t surprising anyone. Most notable (if you’re reading this note anyway) are that gasoline and fuel oil prices were up more than 10% in August, meaning that fuel prices are once again the biggest factor in pushing inflation higher after being the largest deflationary data point for most of the past year.

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Market Talk Update 09.13.2023

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Market TalkFriday, Apr 19 2024

Gasoline Futures Are Leading The Way Lower This Morning

It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.

Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.

A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.

Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.

Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.

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Pivotal Week For Price Action
Market TalkThursday, Apr 18 2024

The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days

The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.

The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.

An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.

Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.

In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.

The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.

Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.

Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.

PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.

Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.

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

Pivotal Week For Price Action