Recovery Rally Continues as Refinery Runs Remain Below Par

The recovery rally continues for energy prices this morning. ULSD futures have rallied 31 cents off of Monday’s low trade, cutting their losses of the prior two weeks by a third, while basis values across much of the country continue to strengthen as well pushing cash prices sharply higher. Gasoline prices are up 21 cents from their Monday lows and look poised to continue to push higher.
The EIA’s short term energy outlook forecast that US refinery runs will remain below normal levels through April as lingering issues from the Christmas blizzard, and heavier than normal spring maintenance after numerous plants deferred work in 2022 will both limit production.
The biggest change in the report was a 30% drop in just 1 month for the US natural gas price forecast as the much warmer than expected winter weather has hampered demand. That phenomenon has no doubt played a role in the huge drop in diesel prices over the past couple of weeks as well as heating oil suppliers along the east coast went from very short on supplies in November to having a glut in February.
The EU Ban on waterborne petroleum products may end up being more disruptive to markets than the crude oil import ban that started in December, and actually forecast a higher number for Russian oil production this year than previously expected. Limited clean tanker availability is expected to be the bottleneck for products whereas so far there have been enough dirty ships to keep most Russian oil moving to alternate markets. Read this Reuters note on how these changes are creating windfalls for shippers and some Asian refiners.
An FT article following the STEO highlighted that the EIA is subtly forecasting that US Gasoline demand will continue to decline over the next two years, which is taken as a signal that it will never again reach the levels we saw before the pandemic. One analyst was quoted in the article as saying that the “heyday of gasoline is over”. Keep in mind that analyst comes from the same parent company that rated credit default swaps as AAA grade investments back in 2008.
The API reported builds in refined product inventories of 5.2 million barrels for gasoline and 2.7 million barrels for diesel, while crude stocks declined by 2.2 million barrels on the week. Those numbers seem to have had minimal impact on outright prices so far but may help explain why the gains in RBOB so far are less than half of those for ULSD in the early going. Considering we managed to go an entire week without a major refinery upset, and many drivers across the south were forced to stay off the roads for 2-3 days, the build in gasoline inventories is really not surprising at all. We’ll get the EIA’s version of the weekly stocks at the regular time today.
LA CARB Diesel basis differentials jumped by 12 cents/gallon Tuesday, after going almost a week without a price change. That basis rally combined with the strong move in futures to push cash prices up more than 25 cents on the day. Reports of a fire at an LA fire could be to blame for the jump, although the lack of trading for several days, and a return to more normal demand patterns after a terribly wet January could also be at play.
Click here to download a PDF of today's TACenergy Market Talk.
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The 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.
