Oil And Gasoline Prices Are Rallying Thursday After A Big Wednesday Sell-Off

Market TalkThursday, Nov 10 2022
Pivotal Week For Price Action

Oil and gasoline prices are rallying Thursday after a big Wednesday sell-off as a better-than-many-expected inflation report has taken the focus away from concerns about slumping fuel demand

US equity futures are seeing huge gains this morning following a CPI report that came in far below estimated levels.  RBOB futures have been following stocks relatively closely over the past couple of weeks and have rallied to 6 cent gains after that report while diesel prices are resisting and still trading lower for the day so far.   

NY Harbor ULSD basis set a new record at $1.25 over December ULSD futures Wednesday, which means someone was willing to pay $1.25 per gallon to have diesel today rather than taking delivery in New York Harbor by the end of December. That phenomenon is creating all sorts of ripple effects up and down the East Coast, as those with extra inventory in tank try to draw it down to avoid the 2-3 cent/day slide in values, while those with trucks search far and wide for supply a state or two south that costs substantially less.

LA Spot gasoline basis surged north of $1/gallon above RBOB futures Wednesday following the Tuesday night fire at an LA refinery. Later in the day reports surfaced that the fire did not impact production units, which may mean we’ll soon see another dramatic reversal in those prices. 

The EIA’s monthly Short Term Energy Outlook (STEO) forecast that the US would officially move into a recession late in 2022, and emerge from it in the back half of 2023. Despite the drop in demand that would come with that prediction, the report increased its forecasted diesel prices for the next year since their models suggest that won’t be enough to offset the historically low supplies in many parts of the world. New refinery capacity in the Middle East and China is coming online just in time to help with the diesel crunch, although shipping logistics will remain a bottleneck as Russian distillates will no longer flow via pipeline to Europe next year. This article from John Kemp of Reuters explains why new exports from China can help, but can’t solve the problem.

The STEO report also forecast that the tight diesel supplies will help put downward pressure on gasoline prices as refiners can still operate profitably thanks to distillate cracks well north of $1/gallon margin, even if it means taking a hit to find a home for the gasoline that nobody wants over the winter time. 

The DOE’s weekly report helped support that theory as US refinery runs continue at above-average levels in all 5 PADDs, despite the large drops in refining capacity over the past several years.  Many plants had to complete substantial maintenance this fall after many projects were delayed in the prior years. A tick higher in US diesel imports also showed that the global market can still react to high prices, despite the challenges of ocean freight logistics both domestically and abroad. Gasoline stocks dropped to a fresh 8 year low last week as strong exports and a tick higher in domestic consumption estimates helped offset the increase in refining output.

Ethanol prices have seen a healthy pullback over the past 2 days as the “cooling off” period to avoid a rail strike was extended to early December, and US ethanol production increased for a 4th straight week, which is helping keeping US inventories well above their seasonal average levels.

Hurricane Nicole made landfall as a Category 1 storm overnight roughly 60 miles south of the port of Cape Canaveral. We should find out later today whether or not there’s any damage to the terminals that receive fuel shipments in the area, but given the proximity and strength of the storm, it seems like this should be a short lived issue. Power issues appear to be the most immediate threat as there have been multiple reports of power issues causing fuel terminals in Orlando and Tampa to be offline. 

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

Market Talk Update 11.10.2022

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

Click here to download a PDF of Today's TACenergy Market Talk.

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

Click here to download a PDF of today's TACenergy Market Talk

Pivotal Week For Price Action