The Latest Bubble In Diesel Prices Looks Like It May Have Popped This Week

Market TalkWednesday, Oct 19 2022
Pivotal Week For Price Action

The latest bubble in diesel prices looks like it may have popped this week as November ULSD futures have dropped more than 30 cents after touching a fresh high for October early in Tuesday’s session. Refinery restarts seem to be a major contributor to the pullback in distillates, while crude oil and gasoline are ticking modestly higher to start the day.

Exxon reported that restart of its 2 French refineries is underway after their strikes were resolved late last week, but it could take 2-3 weeks to get those plants back up to full speed.  Total’s refineries remain closed but their union employees have just agreed to terms on restart this morning, so those efforts should begin soon. 

NY Harbor ULSD Prices look like they may have made the turn towards normal as both basis values and time spreads have seen some modest selling pressure over the past 24 hours after the 2nd biggest rally on record. The restart of the French refineries from their unexpected downtime, along with a couple of East Coast plants ramping up after planned maintenance both seem like they could help this trend continue, with the wild card being how many, if any, cargoes were locked in for delivery to take advantage of that spike. 

Midwestern diesel values look like they may attempt to take over the most expensive in the nation status as the peak of harvest demand season has pushed differentials north of 40 cents/gallon vs the November futures, which is 50-75 cents above the cash markets that are already transitioning to trading vs December futures.

Tuesday’s reports that the President would announce another (relatively small) release from the SPR got credit for some of the selling that took place, although as details emerged, the barrels announced were actually part of the original 180 million barrel released announced earlier this year, as it’s taking longer than expected to get those barrels to the market.   Meanwhile, the actual announcement is expected later today on what they’ll try to do to cool prices.  

The API reported inventory draws across the board last week with crude stocks down 1.3 million barrels, distillates down 1 and gasoline down 2 million barrels. The crude oil decline is a sign of US production stagnating and the SPR releases slowing, which may foreshadow more of what’s to come once those SPR releases finally end.  Read this note from the Financial Times on why the rise of passive investors could be contributing to the lackluster drilling activity in the US. The DOE’s weekly report is due out at its normal time this morning.

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Market Talk Update 10.19.2022

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Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkWednesday, Jul 17 2024

Energy Markets Are Trying To Find A Price Floor After Gasoline And Crude Oil Staged A Healthy Bounce To Minimize The Heavy Losses

Energy markets are trying to find a price floor after gasoline and crude oil staged a healthy bounce to minimize the heavy losses we saw early in Tuesday’s session. WTI is leading the move higher early Wednesday, up nearly $.90/barrel in the early going, while RBOB prices are up just under a penny.

Diesel continues to look like the weak link in the energy chain both technically and fundamentally. Tuesday the API reported a 4.9 million barrel build in diesel stocks, while gasoline inventories were only up 365,000 barrels, and crude oil stocks declined by more than 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning and it’s likely we’ll see a reduction in oil output and PADD 3 refining runs thanks to shut ins ahead of Hurricane Beryl, but otherwise the storm appears to be a relative non-issue with only 1 notable refining hiccup, that wasn’t even as bad as a midwestern Thunderstorm.

Chicago basis values rallied Tuesday after reports that Exxon had shut down the 250mb/day Joliet refinery following severe storms that knocked out power to the area Sunday. RBOB differentials surged nearly 9 cents on the day, while diesel diffs jumped more than a nickel. With 3 large refineries in close proximity, the Chicago cash market is notoriously volatile if any of those facilities has an upset. Back in May there was a one-day spike in gasoline basis of more than 50 cents/gallon after Joliet had an operating upset so don’t be surprised if there are bigger swings this week if the facility doesn’t come back online quickly.

Moving in the opposite direction, California basis values are heading the opposite direction with the transition to August scheduling pressuring CARBOB differentials in LA and San Francisco to their biggest discounts to prompt RBOB futures in more than 18 months. Gasoline imports into PADD 5 have held well above average levels over the past 2 months, which has more than offset the loss of the P66 Rodeo refinery’s output after it completed its conversion to RD production, in another sign of how growing refining capacity in China and other Asian countries may become more influential to the US. California regulators may also pat themselves on the back that their new plans to force refineries to report their gross profit monthly, in addition to the rules requiring all bulk trades in the state be reported must be driving the lower gasoline differentials, assuming they figure out what a basis differential is.

Meanwhile, California’s Carbon Allowance values have tumbled to their lowest levels in a year after a CARB presentation last week suggested the agency would be delaying long-anticipated tightening of the Cap and Trade program until 2026.

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

Pivotal Week For Price Action
Market TalkTuesday, Jul 16 2024

The Sell-Off In Energy Markets Continues, With Refined Products Reaching Their Lowest Levels In A Month Early In Tuesday’s Session

The sell-off in energy markets continues, with refined products reaching their lowest levels in a month early in Tuesday’s session. Reports of slowing growth in China, the world’s largest oil purchaser, is getting much of the credit for the slide in prices so far this week, although that doesn’t do much to explain why refined products are outpacing the drop in crude.

ULSD futures are leading the early move lower, trading down a nickel on the day, and marking a 19 cent drop since July 4th. There’s not much in the way of technical support for ULSD, so don’t be surprised if this sell-off continues to pick up steam.

With today’s slide, RBOB futures are down 17 cents from where they were trading on July 4th, and are just a couple of cents from testing their 200-day moving average. Should that support break, it looks like there’s a good chance to test the June lows around $2.29.

Physical markets are not offering any strength to the futures market with all 6 of the major cash markets for diesel across the US trading at a discount to ULSD futures, while only 1 gasoline market is trading at a premium to RBOB futures. That combination of weakness in futures and cash markets is going to be troubling for refiners who are seeing margins reduce during what is traditionally a strong time of year.

The EIA highlighted the energy trade between the US and Mexico in a report Monday, showing that despite so many claims of energy independence from Mexican officials, the actual amount of refined fuels and natural gas bought from the US continues to increase. That’s good news for many US refiners who have become more dependent on Mexican purchases to find a home for their output.

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