ULSD Futures Are Continuing To Slide This Morning, Continuing Their Technical Meltdown

Market TalkThursday, Nov 9 2023
Pivotal Week For Price Action

Gasoline prices are seeing modest gains in the early going after reaching fresh lows for the year in Wednesday’s session. An attempted rally Wednesday morning lost momentum mid-day, leading to more heavy losses across the petroleum complex.  

ULSD futures are continuing to slide this morning, continuing their technical meltdown despite the bounce in crude and gasoline contracts. It feels like we’re witnessing healthy liquidations from the big money managers this week, although we won’t get confirmation of that until next Friday’s COT report. 

Since the DOE didn’t publish its inventory figures this week, we’ll take a look at the California Energy Commission weekly statistics to make sure everyone gets their chart fix. 

Gasoline inventories in the republic of California ticked higher on the week as refiners increased output by roughly 100mb/day. Northern California CARBOB stocks are holding near the top end of their seasonal range, while Southern California gasoline inventories are near the bottom end of their range. CARB diesel stocks saw a large decline on the week, with a similar pattern of Northern CA markets seeing inventories closer to the top end of their range, while Southern CA has inventories near the low end of the range. That dynamic probably helps explain why there’s still a 30-cent spread between LA and San Francisco diesel prices, even after bay area differentials jumped 15 cents yesterday.

One point of confusion on both the California and Federal inventory reports is it seems that the rapidly increasing inventories of Renewable Diesel are not being captured in the numbers.  The DOE’s weekly survey does not have a line for renewable diesel and California’s “Other Diesel Fuel” category is specific to “EPA” diesel that’s bound for export to other states and countries.  Based on the survey definitions, it’s safe to say that the actual usable distillate inventories and demand are being understated due to this phenomenon.

While West Coast basis values are rallying once again, we’re seeing more downside pressure in the Gulf Coast basis values as refiners are having a harder time finding a home for their output.  A softer export market seems to be backing barrels up into the Gulf Coast, pushing up premiums for Colonial line space as shippers who had become accustomed to sending 20% of local production overseas suddenly need to find a domestic home for their excess output.  

Turn the trucks around: just a couple of weeks after Group 3 diesel prices were fetching 50+ cent premiums to neighboring Chicago-based markets, inducing an east-west location arbitrage, those spreads have now flipped with Chicago holding a 35-cent premium, incenting long hauls in the opposite direction after a pair of IL refinery hiccups over the past week. Chicago market historians and spreadsheet enthusiasts alike will note that this unusual price spread comes 1 year to the day from when Chicago land prices reached a 40-cent premium to neighboring markets.

Not going anywhere for a while? An auction to skip the growing logjam of ships waiting to cross the Panama Canal Wednesday fetched $4 million from the “winning” ship owner. 

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

Market Talk Update 11.09.2023

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Pivotal Week For Price Action
Market TalkFriday, Dec 1 2023

“Buy The Rumor, Sell The News” Seems To Be The Trading Pattern Of The Week

“Buy the Rumor, Sell the News” seems to be the trading pattern of the week as oil and refined products dropped sharply Thursday after OPEC & Friends announced another round of output cuts for the first quarter of next year. 

Part of the reason for the decline following that report is that it appears that the cartel wasn’t able to reach an official agreement on the plan for next year, prompting those that could volunteer their own production cuts without forcing restrictions on others. In addition, OPEC members not named Saudi Arabia are notorious for exceeding official quotas when they are able to, and Russia appears to be (surprise) playing games by announcing a cut that is made up of both crude oil and refined products, which are already restricted and thus allow an incremental increase of exports. 

Diesel futures are leading the way lower this morning, following a 13-cent drop from their morning highs Thursday, and came within 3-cents of a new 4-month low overnight. The prompt contract did leave a gap on the chart due to the backwardation between December and January contracts, which cut out another nickel from up front values.

Gasoline futures meanwhile are down 15-cents from yesterday’s pre-OPEC highs and are just 7-cents away from reaching a new 1-year low.  

Cash markets across most of the country are looking soft as they often do this time of year, with double digit discounts to futures becoming the rule across the Gulf Coast and Mid Continent. The West Coast is mixed with diesel prices seeing big discounts in San Francisco, despite multiple refinery upsets this week, while LA clings to small premiums. 

Ethanol prices continue to hold near multi-year lows this week as controversy over the fuel swirls. Corn growing states filed a motion this week trying to compel the courts to force the EPA to waive pollution laws to allow E15 blends. Meanwhile, the desire to grow even more corn to produce Jet Fuel is being hotly debated as the environmental impacts depend on which side of the food to fuel lobby you talk to.

The chaotic canal congestion in Panama is getting worse as authorities are continuing to reduce the daily number of ships transiting due to low water levels. Those delays are hitting many industries, energy included, and are now spilling over to one of the world’s other key shipping bottlenecks.

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

Pivotal Week For Price Action
Market TalkThursday, Nov 30 2023

No Official Word From OPEC Yet On Their Output Agreement For Next Year

Energy prices are pushing higher to start Thursday’s session after a big bounce Wednesday helped the complex maintain its upward momentum for the week.   

There’s no official word from OPEC yet on their output agreement for next year, but the rumor-mill is in high gear as always leading up to the official announcement, if one is actually made at all. A Reuters article this morning suggests that “sources” believe Saudi Arabia will continue leading the cartel with a voluntary output cut of around 1-million BPD to begin the year and given the recent drop in prices that seems like a logical move. 

We saw heavy selling in the immediate wake of the DOE’s weekly report Wednesday, only to see prices reverse course sharply later in the day. ULSD was down more than 9-cents for a few minutes following the report but bounced more than 7-cents in the afternoon and is leading the push higher this morning so far.

It’s common to see demand drop sharply following a holiday, particularly for diesel as many commercial users simply shut down their operations for several days, but last week’s drop in implied diesel demand was one of the largest on record for the DOE’s estimates. That drop in demand, along with higher refinery runs, helped push diesel inventories higher in all markets, and the weekly days of supply estimate jumped from below the 5-year seasonal range around 25 days of supply to above the high end of the range at 37 days of supply based on last week’s estimated usage although it’s all but guaranteed we’ll see a correction higher in demand next week.

Gasoline demand also slumped, dropping to the low end of the seasonal range, and below year-ago levels for the first time in 5-weeks. You’d never guess that based on the bounce in gasoline prices that followed the DOE’s report however, with traders appearing to bet that the demand slump in a seasonal anomaly and tighter than average inventories may drive a counter-seasonal price rally.

Refinery runs increased across the country as plants returned to service following the busiest fall maintenance season in at least 4-years. While total refinery run rates are still below last year’s levels, they’re now above the 5-year average with more room to increase as no major upsets have been reported to keep a large amount of throughput offline.

The exception to the refinery run ramp up comes from PADD 4 which was the only region to see a decline last week after Suncor apparently had another inopportune upset at its beleaguered facility outside Denver. 

The 2023 Atlantic Hurricane season officially ends today, and it will go down as the 4th most active season on record, even though it certainly didn’t feel too severe given that the US dodged most of the storms.  

Today is also the expiration day for December 2023 ULSD and RBOB futures so look to the January contracts (RBF and HOF) for price direction if your market hasn’t already rolled.

More refineries ready to change hands next year?  With Citgo scheduled to be auctioned off, Irving Oil undergoing a strategic evaluation, and multiple new refineries possibly coming online, 2024 was already looking to be a turbulent year for refinery owners. Phillips 66 was indicating that it may sell off some of its refinery assets, but a new activist investor may upend those plans, along with the company’s directors.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action