Refined Products Set Fresh Multi-Month Highs In Another Strong Session For The Bulls Thursday

Market TalkFriday, Jul 28 2023
Pivotal Week For Price Action

Refined products set fresh multi-month highs in another strong session for the bulls Thursday and have resumed that push higher this morning after a brief pullback overnight. 

August RBOB futures reached $2.9679 this morning, the highest level since October of last year. It seems like we’ll see at least an attempt to try and push those values to $3 ahead of the contract expiration on Monday, before the roll to the September contract knocks about 7 cents off of the prompt values.  The strength in futures and time spreads this week has come in spite of weakness in NYH basis differentials and Colonial linespace values as PADD 1 refinery runs quickly recovered after the extended downtime at the Bayway refinery.  

ULSD futures are trading at their highest level since Valentine’s Day touching $2.9338 in the early going, which opens up a similar window for a push towards $3 just like RBOB. Unlike RBOB however, physical buyers seem to be jumping on the diesel bandwagon with stronger basis values seen across most of the country, and less backwardation in the forward curve means prompts values will drop just a penny or two after Monday’s expiration.

While refined products are celebrating a summer renaissance, ethanol values are heading the opposite direction, dropping by 25 cents this week on the back of weaker corn prices. The diverging price patterns has pushed the premium for gasoline vs ethanol (net of RIN values) north of $2/gallon. 

We are still about 6 weeks away from the peak of hurricane season, but the NHC is tracking 3 different potential storm systems this morning, 2 of which could be threats for the east coast. The good news is 2 of the 3 systems are given low odds of development and are already close to shore giving them little chance to develop into something meaningful. The third system is given 60% odds of being named next week and is far enough north and east that it may stay offshore, but there is a possibility of some disruption along the Eastern Seaboard as it moves north.

There’s a common theme among the refiner Q2 earnings releases this week: The 2nd quarter of 2023 was nowhere near as strong as the record smashing margin environment they enjoyed a year ago, but margins are still pretty good given low inventory levels and recovering demand. The reports are also confirming what many on the West Coast already knew, that renewable diesel production has surged in the past 6 months and created a rapidly changing environment for the diesel marketplace as both the new renewable barrels and the old traditional diesel barrels all look for new homes.

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Market Talk Update 07.28.2023

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Pivotal Week For Price Action
Market TalkThursday, Feb 29 2024

It's Another Mixed Start For Energy Futures This Morning After Refined Products Saw Some Heavy Selling Wednesday

It's another mixed start for energy futures this morning after refined products saw some heavy selling Wednesday. Both gasoline and diesel prices dropped 7.5-8.5 cents yesterday despite a rather mundane inventory report. The larger-than-expected build in crude oil inventories (+4.2 million barrels) was the only headline value of note, netting WTI futures a paltry 6-cent per barrel gain on the day.

The energy markets seem to be holding their breath for this morning’s release of the Personal Consumption Expenditures (PCE) data from the Bureau of Economic Analysis (BEA). The price index is the Fed’s preferred inflation monitor and has the potential to impact how the central bank moves forward with interest rates.

Nationwide refinery runs are still below their 5-year average with utilization across all PADDs well below 90%. While PADD 3 production crossed its 5-year average, it’s important to note that measure includes the “Snovid” shutdown of 2021 and throughput is still below the previous two years with utilization at 81%.

We will have to wait until next week to see if the FCC and SRU shutdowns at Flint Hills’ Corpus Christi refinery will have a material impact on the regions refining totals. Detail on the filing can be found on the Texas Commission on Environmental Quality website.

Update: the PCE data shows a decrease in US inflation to 2.4%, increasing the likelihood of a rate cut later this year. Energy futures continue drifting, unfazed.

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
Pivotal Week For Price Action
Market TalkWednesday, Feb 28 2024

It’s Red Across The Board For Energy Prices So Far This Morning With The ‘Big Three’ Contracts All Trading Lower To Start The Day

It’s red across the board for energy prices so far this morning with the ‘big three’ contracts (RBOB, HO, WTI) all trading lower to start the day. Headlines are pointing to the rise in crude oil inventories as the reason for this morning’s pullback, but refined product futures are leading the way lower, each trading down 1% so far, while the crude oil benchmark is only down around .3%.

The American Petroleum Institute published their national inventory figures yesterday afternoon, estimating an 8+ million-barrel build in crude oil inventory across the country. Gasoline and diesel stocks are estimated to have dropped by 3.2 and .5 million barrels last week, respectively. The official report from the Department of Energy is due out at its regular time this morning (9:30 CST).

OPEC’n’friends are rumored to be considering extending their voluntary production cuts into Q2 of this year in an effort to buoy market prices. These output reductions, reaching back to late 2022, are aimed at paring back global supply by about 2.2 million barrels per day and maintaining a price floor. On the flip side, knowledge of the suspended-yet-available production capacity and record US output is keeping a lid on prices.

How long can they keep it up? While the cartel’s de facto leader (Saudi Arabia) may be financially robust enough to sustain itself through reduced output indefinitely, that isn’t the case for other member countries. Late last year Angola announced it will be leaving OPEC, freeing itself to produce and market its oil as it wishes. This marks the fourth membership suspension over the past decade (Indonesia 2016, Qatar 2019, Ecuador 2020).

The spot price for Henry Hub natural gas hit a record low, exchanging hands for an average of $1.50 per MMBtu yesterday. A rise in production over the course of 2023 and above average temperatures this winter have pressured the benchmark to a price not seen in its 27-year history, much to Russia’s chagrin.

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