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
Market TalkWednesday, Jun 7 2023

Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf

Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce. 

A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling. 

New tactic?  Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour

The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates. 

The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.   

The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning. 

We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.

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Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkTuesday, Jun 6 2023

Energy Prices Retreat, Global Demand Concerns Loom

So much for that rally. Energy prices have given back all of the gains made following Saudi Arabia’s announcement that it would voluntarily withhold another 1 million barrels/day of oil production starting in July. The pullback appears to be rooted in the ongoing concerns over global demand after a soft PMI report for May while markets start to focus on what the FED will do at its FOMC meeting next week.

The lack of follow through to the upside leaves petroleum futures stuck in neutral technical territory, and since the top end of the recent trading range didn’t break, it seems likely we could see another test of the lower end of the range in the near future.  

RIN prices have dropped sharply in the past few sessions, with traders apparently not waiting on the EPA’s final RFS ruling – due in a week – to liquidate positions. D6 values dropped to their lowest levels in a year Monday, while D4 values hit a 15-month low. In unrelated news, the DOE’s attempt to turn seaweed into biofuels has run into a whale problem.  

Valero reported a process leak at its Three Rivers TX refinery that lasted a fully 24 hours.  That’s the latest in a string of upsets for south Texas refineries over the past month that have kept supplies from San Antonio, Austin and DFW tighter than normal. Citgo Corpus Christi also reported an upset over the weekend at a sulfur recovery unit. Several Corpus facilities have been reporting issues since widespread power outages knocked all of the local plants offline last month.  

Meanwhile, the Marathon Galveston Bay (FKA Texas City) refinery had another issue over the weekend as an oil movement line was found to be leaking underground but does not appear to have impacted refining operations at the facility. Gulf Coast traders don’t seem concerned by any of the latest refinery issues, with basis values holding steady to start the week.

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