Refinery Utilization Rates Dropped Slightly And Tropical Storm Franklin Moving A Different Direction
For the 2nd day in a row, ULSD prices bounced more than 4 cents off their intra-day low in the $3.09 range, settling down just under a penny. Refined products saw just under 1% losses yesterday and are hovering just over flat this morning. Oil benchmarks are headed in the opposite direction with concerns about China’s economic status and whether the Fed will increase interest rates again still weighing on the market.
Yesterday the EIA reported crude stocks drew another 6.1 million barrels last week with all five PADDs showing declines. Imports, exports, and demand all dropped slightly but are still above average, while output ticked up for the third week in a row, inching closer to pre-pandemic levels.
Refined product inventories both posted builds last week as refinery utilization rates dropped slightly. Diesel supply grew despite a sizeable decrease in imports and demand jumping back up to the 5-year average. However, inventories are still hovering below average across the country, with the exception of PADD 2, which crossed that mark for the first time this year. Builds in gas stocks were aided by a 52% increase in imports but are also sitting beneath average levels.
PADD 3 refinery runs were up last week and so far, none of the Corpus area refiners have reported major operational issues from Tropical Storm Harold. Citgo did report a power outage affecting a portion of their plant during the storm but were planning to restart the units and restore full run rates Wednesday.
Kinder Morgan resumed normal operations on its West pipeline that moves product from Los Angeles to Phoenix after completing repair work to fix damage caused by Hilary’s flood waters. Products across the region remain tight however with several refinery disruptions and limited pipeline capacity across the region restricting options for resupply and pushing rack spreads sharply higher. Las Vegas had the most notable price spike this week with traders paying more than $1/gallon over futures for prompt barrels.
Tropical Storm Franklin meanwhile is taking an unusual path moving north and east over the Dominican Republic out of the Caribbean and back into the Atlantic. That storm is expected to reach hurricane status over the weekend and will eventually move on a more westerly course that will require the East Coast to keep an eye on its progression. So far none of the other 3 systems being tracked by the NHC look to be a threat to the US.
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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.