Refined Products Are Leading The Energy Complex Lower To Start The New Year

Refined products are leading the energy complex lower to start the new year, after a strong finish to a wild 2022. Energy futures start the year in neutral technical territory, with a break above $3.40 for ULSD and $2.50 for RBOB needed to regain their upward momentum.
Unseasonably warm weather across large parts of the US and Europe are easing heating demand, pushing natural gas and diesel prices lower, while also helping US refineries recover from the Christmas blizzard. We did see gulf coast basis values rally alongside futures last Friday, suggesting that some refiners are being forced to buy product they would have otherwise produced themselves. Despite that bump higher, it still appears that the impact of those disruptions will remain fairly muted as we’re in the worst 2 weeks of the year for consumption, which gives a bit more leeway to the supply network.
Concerns about a global recession continue to loom over energy and equity markets, with the IMF chief over the weekend suggesting that 1/3 of the world’s economy to contract this year as the US, Europe and China all slow simultaneously.
The good news is that with fuel prices dropping nearly $2/gallon from their summer highs, and nearly $1/gallon in the past 2 months, the US consumer has some extra money in their pocket to start the new year, which will help minimize the impact of a slowdown. Whether or not these lower prices can be sustained, particularly with the world’s largest oil consumer attempting to reopen its economy for business, is a major question mark for the next few months.
The forward curve charts below show that 2023 will still have backwardation as a major theme that shippers will have to deal with, even though some prompt contracts have slipped into contango as we move through the winter demand doldrums.
Refiners with operable facilities are starting the year on a strong note with healthy margins owing to the global shortage of distillates, and the recent storm disrupting operations after US facilities proved they could step up production this fall. New refining capacity from Asia and the Middle east will put downward pressure on those crack spreads and create ripple effects in the global market this year, but it’s still unclear how that will shake out given the lack of transportation options caused the Russian splinter effect.
Speaking of which, the EIA published a note this morning highlighting how Russia’s invasion of Ukraine has impacted commodity markets of all varieties over the past 10 months.
Click here to download a PDF of today's TACenergy Market Talk.
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Week 48 - US DOE Inventory Recap

The API Reported Gasoline Inventories Dropped By 898,000 Barrels Last Week
Gasoline and oil prices are attempting to rally for a 2nd straight day, a day ahead of the delayed OPEC meeting, while diesel prices are slipping back into the red following Tuesday’s strong showing.
The API reported gasoline inventories dropped by 898,000 barrels last week, crude inventories declined by 817,000 barrels while distillates saw an increase of 2.8 million barrels. Those inventory stats help explain the early increases for RBOB and WTI while ULSD is trading lower. The DOE’s weekly report is due out at its normal time this morning.
A severe storm on the Black Sea is disrupting roughly 2% of the world’s daily oil output and is getting some credit for the bounce in futures, although early reports suggest that this will be a short-lived event.
Chevron reported that its Richmond CA refinery was back online after a power outage Monday night. San Francisco spot diesel basis values rallied more than a dime Tuesday after a big drop on Monday following the news of that refinery being knocked offline.
Just a few days after Scotland’s only refinery announced it would close in 2025, Exxon touted its newest refinery expansion project in the UK Tuesday, with a video detailing how it was ramping up diesel production to reduce imports and possibly allow for SAF production down the road at its Fawley facility.
Ethanol prices continue to slump this week, reaching a 2-year low despite the bounce in gasoline prices as corn values dropped to a 3-year low, and the White House appears to be delaying efforts to shift to E15 in an election year.
Click here to download a PDF of today's TACenergy Market Talk.

Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
Click here to download a PDF of today's TACenergy Market Talk.