Refinery Issues Over The Past 2 Weeks Showed Up In The DOE’s Figures With 4 Of The 5 PADDs Seeing Lower Run Rates
The weekly trend line that pushed diesel prices up nearly $1/gallon over the past 2 months broke Wednesday and sent ULSD futures tumbling. The September futures contract, which expires today, is down 22 cents for the week so far, making it highly likely that the record-setting streak of 9 straight weekly increases is about to end, and the charts now suggest we’ll at least see an attempt to push prices back below the $3 mark soon.
While the diesel bubble has popped, oil and gasoline prices are recovering nicely with WTI actually moving higher for the week following a big decline in inventories while RBOB futures have bounced 8 cents off of their lows. Today is the last trading day for the summer-spec September RBOB contract, so there will be a big drop of around 22 cents when October takes the prompt position tomorrow. Most cash markets around the country have already rolled to trading vs the October futures, but those that haven’t are seeing differentials jump 20+ cents to offset that spread between the winter and summer grades.
The numerous refinery issues over the past 2 weeks showed up in the DOE’s figures with 4 of the 5 PADDs seeing lower run rates. PADD 2 was the exception to that rule as Midwestern refiners set a new record for run rates averaging more than 4.2 million barrels/day last week, which is more than 100% of their nameplate capacity. Those strong run rates help explain why PADD 2 is also the only region in the US with above average diesel inventories, while all others are closer to the low end of their 5-year range. Limited options to move those excess barrels also explains why ULSD in the Chicago region is trading 10-30 cents below neighboring markets.
Idalia has moved offshore as a tropical storm this morning, and it looks like the energy supply network dodged a bullet as terminal operations in the region appear to be unscathed and the EPA has issued another RVP waiver to allow higher than 9lb blends to come into the state to help with resupply. Tropical storm Jose formed overnight over the central Atlantic and the NHC is tracking 2 other systems, but none of them look to be a threat to the US so we’ll get to catch our breath for a couple of days before the peak of the season.
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View AllThe 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.
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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.