Oil Prices Are Heading Higher While Diesel Prices Are Facing Heavy Selling Pressure This Week
Oil prices are heading higher while diesel prices are facing heavy selling pressure this week, setting up some potentially pivotal technical tests that could shape the pattern of summer trading.
ULSD prices are currently down 19 cents since Friday’s settlement, while WTI has rallied more than $3/barrel, knocking more than $10/barrel off of the record high diesel crack spreads in less than 2 days. Don’t worry though, despite the pullback, most plants in the US are still looking at margins for a 5/3/2 ratio (5 barrels of crude producing 3 barrels of gasoline and 2 barrels of distillates) north of $1/gallon despite that drop.
The recovery in oil prices while refined products have stumbled seems to be due at least in part to reports that the Saudis and UAE are both pumping at current capacity and will need 6 months or more to bring their additional “spare” capacity on line.
Hurricane Bonnie is expected to be named this week, with a landfall projected in Central America this weekend. The system churning off the Texas coast is still given low odds of being named, but is expected to bring heavy rainfall to parts of Texas and Louisiana, with towns inland like Shreveport and Texarkana expected to see 8-12 inches of rain based on the European forecast model.
The DOE continues to struggle to restore its servers after a hardware failure last week, and delayed its weekly gasoline and diesel fuel update that many companies use as a benchmark for freight surcharges Monday. No word yet if the weekly status report will be delayed again, but they do plan on publishing retroactively as they continue to collect data through this outage.
The agency did publish a brief note highlighting the increased flow of fuel from the Gulf Coast to the East Coast noting that 2.8 million barrels/day (117 million gallons daily) flowed between pipeline, tanker and barge from PADD 3 to PADD 1 this year.
BP released its annual statistical review of world energy, noting the largest annual increase in demand ever last year, which pushed global consumption higher than 2019 levels, even though oil & products demand remains slightly below pre-pandemic levels. The report also noted the first global decline in refining capacity in more than 30 years, while a resurgence in coal usage by countries looking to avoid energy crises is driving a sharp increase in global emissions.
Speaking of which, 3 oil majors announced plans to create a giant carbon capture hub in China this week, something they estimate could capture as much as 10 million tons of CO2 annually.
Why let the details spoil a party? Mexico’s president will inaugurate a new refinery this week, even though reports suggest it’s still several years away from being completed, and is going to cost around $4 billion more than the earlier estimates of $8 billion.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllThe Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.
The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.
We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.
The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.
Click here to download a PDF of today's TACenergy Market Talk.
Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.
There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.
As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.
Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.