The First 4.5 Trading Days Of March Have Smashed Records For Daily Price Swings And Increases
Good news: gasoline prices are down 28 cents and diesel prices are down 33 cents from where they were trading last night.
Bad news: both contracts reached record highs last night in the first few minutes of trading, and are still showing large gains from Friday despite the pullback.
The first 4.5 trading days of March have smashed records for daily price swings and increases as the world comes to grips with the idea that there is no short term solution to replace Russian petroleum supplies, making the risk of both volatility and government intervention higher than ever. For both ULSD and RBOB, these would be the largest monthly gains on record if prices hold, and we’re not even through a full week yet.
For ULSD, we’ve already seen the biggest monthly trading range ($1.30/gallon) in just 4.5 days of trading, while the RBOB range of $.95 ranks third all-time behind the March 2020 and December 2008 market meltdowns that both surpassed $1/gallon.
An official Russian oil embargo (vs the current unofficial and voluntary embargo) was floated over the weekend, while renewed negotiations to reduce sanctions and increase oil output with both Iran and Venezuela seem to be going nowhere, and both seem to be factors in the latest price spike.
Already, even though energy products aren’t officially sanctioned (yet), we’re seeing dramatic signs of the impact a lack of international buyers is having on its refining operations, as plants are forced to cut run rates and halt crude intake due to a lack of storage for their production. Refinery maintenance and upgrades are also expected to be hampered without access to foreign technology.
Regional supplies in the US have been disrupted over the past two weeks by a pair of Kinder Morgan pipeline issues, and a handful of (so far minor) refinery disruptions. The coastal markets remain tight in general, while inland markets remain well supplied, and lacking transportation to help alleviate their glut, and/or take advantage of the record spreads from the middle of the country to the edges.
RIN values pulled back on Friday, even as Corn, Soybean (and refined product) prices continued to spike. A “news” article suggesting the White House was considering a biofuel waiver to help curb food inflation seems to have been the driver of that selling. Other non-food-based environmental credits like the European EUA’s, and California’s LCFS and CCA credits are all seeing heavy selling as expectations rise for both demand destruction, and a change of heart from governments that just a few weeks ago still thought having clean energy was more important than having energy.
Short covering was the theme of the week for money managers, that saw large reductions in the short positions held in energy futures. WTI and Brent saw some modest new length enter the market, but the lack of “piling on” at least in the first two days of the week when the CFTC data is collected, suggested these huge swings may be too hot to handle, even for the big speculators.
Baker Hughes reported a decline of 3 oil rigs working in the US last week, snapping a 5 week streak of increases. Natural gas rigs increased by 3, the 9th straight week of gains for natural gas focused drilling.
Click here to download a PDF of today's TACenergy Market Talk.
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After Years Of Backwardation, Diesel Prices Have Slipped Into Contango Over The Past Week
The pullback continues for energy prices as violence in the Middle East looks like it won’t rapidly expand, and financial markets continue to struggle with a higher-for-longer interest rate reality.
After years of backwardation, diesel prices have slipped into contango over the past week, despite multiple canal disruption concerns of reduced exports coming out of Russia. A Reuters article highlights how sluggish demand in Europe, and a glut of Asian supply [thanks to the rapid influx of new refining capacity over the past 2 years] is contributing to the changing market structure. This sudden weakness in diesel is also leading many refiners to reconsider their max-diesel output stance that had been key to their record setting margins in 2022 and 2023.
Money managers were reducing their bets on higher energy prices last week, in what appears to be an unwind of the positions added the prior week when it seemed like we might have an all-out war between Israel and Iran. The exception to the reduction in speculative length was the Brent crude oil contract which saw its money manager positions increase for a 4th week to reach a 3-year high. Open interest in crude oil contracts is also increasing to multi-year highs as new money flows into the energy space as a hedge of both inflation and geopolitical concerns, which could contribute to a tick higher in volatility if the sell-off continues this week as the bandwagon jumpers may soon be looking for a new ride.
Baker Hughes reported a net increase of 5 oil rigs drilling in the US last week, while natural gas rigs dropped by 2 on the week to a fresh 2 year low. The Permian basin has quietly added 8 more rigs in the past 4 weeks as producers in that region try to find a way around the shipping bottlenecks to get their otherwise profitable production to market. An RBN note last week highlighted how the lack of natural gas pipeline capacity will limit crude oil production capacity in the basin, and Kinder Morgan highlighted the need for another pipe in its latest earnings call.
Valero reported an upset at its Corpus Christi West refinery Saturday, although it appears that the brief flaring didn’t reduce operational levels.
Click here to download a PDF of today's TACenergy Market Talk.
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.
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.