Refined Product Prices Drifting Lower This Morning
Refined product prices are drifting lower this morning, contrasted by the albeit tepid buying seen in the American and European crude oil futures markets. The prospect of China implementing an economic stimulus policy is being cited for keeping WTI and Brent futures in the green so far today.
The Department of Energy yesterday reported a small draw in crude oil inventories despite lower refinery runs and imports topping annual highs along with strong exports and demand. Gasoline inventories saw the largest move, drawing down 1.1 million barrels last week while diesel stocks built by just 13,000 barrels.
The EIA’s latest publication highlights the intrigue surrounding the production and consumption of renewable diesel in the U.S.. While California makes up over 99% of the nation’s RD consumption (the <1% is Oregon), a very small percentage of the product is actually made there. Unsurprisingly the demand for renewable diesel, which is chemically equivalent to regular ULSD, picked up due to the state’s Low Carbon Fuel Standard which offers hefty tax avoidance on renewable fuels. While this remained a West Coast phenomenon through 2021, we expect renewable fuels to proliferate as more states adopt environmentally-conscious policies, like WA implemented this year.
It has been All Quiet on the Atlantic Front for the past couple of weeks, but there are early signs of a potential storm brewing off the west coast of Africa. It’s only got a 20% chance of developing in the next week, but it’s position and projected path are right in line with the major hurricanes we’ve witnessed in the last few years, especially those that have made landfall on the U.S. mainland.
Click here to download a PDF of today's TACenergy Market Talk and Week 29 DOE Charts.
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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.