Rising Fuel Stockpiles Outweighing Rising Stock Markets

Rising fuel stockpiles are outweighing rising stock markets as RBOB gasoline futures trade lower for a 6th straight session and the rest of the energy complex continues to hover near multi-month lows.
US equities had a huge rally Tuesday, which seemed to help energy prices pull back from the multi-month lows, after the FED Chairman Jerome Powell suggested that an interest rate cut may be coming to help offset potential impacts of the trade wars. The CME’s fedwatch tool is showing a nearly 70% probability that the FED will cut rates by at least 25 points by the end of July following those statements, up from less than a 30% probability just a week ago. With expectations changing that rapidly, it seems like the market may be setting itself up for disappointment if that rate cut doesn’t come soon.
Unfortunately for the beleaguered bulls in energy contracts, the equity-induced bounce didn’t hold up after the API was said to report across-the-board builds in inventory last week. Diesel stocks were estimated to have the largest increase of 6.3 million barrels, while crude stocks were up 3.6 million and gasoline supplies increased by 2.7 million barrels. The DOE/EIA’s weekly report is due out at its normal time of 9:30 central.
The storms moving across the Gulf of Mexico are not expected to develop into a tropical system, but they are expected to bring flooding rains to refinery country. The majority of gulf coast refineries, and more than 1/3 of the country’s total, and are covered by the flood alerts through the end of the week. While major refinery damage from a disorganized system like this seems unlikely, it is certainly possible that it could further disrupt pipeline and/or marine vessel traffic and perhaps back up barrels destined for export, leading to more inventory builds in next week’s reports.
The additional rains are even less welcome in the Midwest, as it looks like a record amount of farm land will go unplanted this year. The charts below show how that continues to put a bid under ethanol prices, while diesel differentials in the region are collapsing.
A Wall Street journal survey of 10 investment banks suggests the latest price plunge hasn’t changed their outlooks for oil prices in the back half of the year, with most still targeting Brent around $70. The bulls will find solace in their predictions that fundamental supply tightness will eventually outweigh trade fears in sending prices higher, while the bears will find solace that these predictions come from the same institutions that made up credit default swaps on mortgage backed securities.
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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.