Refined Products Are Treading Water This Morning As The Market Continues To Cool Its Heels After Last Week’s Big Rally

Market TalkWednesday, Feb 14 2024
Pivotal Week For Price Action

Refined products are treading water this morning as the market continues to cool its heels after last week’s big rally. Gasoline prices are hovering near breakeven after 2 straight up days, while ULSD futures are seeing modest declines in what would be a 3rd straight day of losses to follow 5 straight days of increases.

It’s not just refined products that are seeing a diverging path this week: WTI is trading higher for an 8th consecutive session, while natural gas is trading lower for an 8th day, reaching a 3.5 year low in the process. In some ways, natural gas prices are being pushed lower by crude, since the record high production of oil in the US is also coming with an excess production of gas, while record warm temperatures this winter put a big damper on demand. 

The weakness in natural gas markets also seems to be spilling into ULSD prices, particularly after the Nor’easter that slammed the East Coast yesterday moved through the area quickly and didn’t lead to any gas curtailments that would cause diesel demand to spike near term.  That lack of heating demand also helps explain the sharp pullback in diesel spreads this week after a sharp rally when the first forecasts for that storm came out last week.

Natural gas is also featuring in the latest Middle Eastern violence after one of Iran’s major gas pipeline systems was targeted in a series of “terrorist” attacks.

OPEC continues to sound bullish in its latest monthly oil market report, noting that while global growth remains below pre-pandemic levels, economic activity surpassed expectations last year and they predict that trend to continue as inflation eases in the world’s major economies. 

The report also noted a huge divergence in clean product tanker rates depending on which side of the Red Sea you’re on, with East of Suez rates surging 45%, while West of Suez dropped by 10%. Sour crude grades were also increasing due to the Red Sea shipping disruptions reducing the options for Asian Pacific buyers.

OPEC’s oil output dropped by 350mb/day during January with large decreases from Libya, Kuwait and Iraq offsetting small increases from Saudi Arabia and the UAE.

The API reported healthy draws in refined product inventories last week with gasoline stocks down 7 million barrels and diesel down 4 million barrels. Crude oil stocks rose by more than 8 million barrels on the week, with roughly half of that gain accounted for by the shutdown of BP’s Whiting refinery that’s reached almost 2 weeks. The EIA’s weekly status report is due out at its normal time this morning and will be delayed by President’s day next week. 

Chevron and PBF dropped lawsuits and agreed to comply with San Francisco Bay-Area regulators on a plan to reduce particulate pollution starting in July 2026. Expectations are that both facilities will install wet gas scrubbers to comply with the ruling, rather than convert their operations as 2 other Bay-Area refineries have done recently.

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Market Talk Update 02.14.2024

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Market TalkFriday, Apr 19 2024

Gasoline Futures Are Leading The Way Lower This Morning

It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.

Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.

A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.

Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.

Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 18 2024

The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days

The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.

The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.

An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.

Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.

In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.

The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.

Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.

Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.

PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.

Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.

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

Pivotal Week For Price Action