ULSD Futures Have Dropped Below $3 For The First Time Since March This Week
ULSD Futures have dropped below $3 for the first time since March this week, and wholesale diesel prices are dropping to their lowest levels of the year. RBOB gasoline futures touched a new low for 2022 at $2.1753 overnight, and most US spot markets are trading well below the $2 mark.
The heavy losses in refined products seemed to follow reports that China would be cutting retail prices for fuel due to a lack of demand, which is just the latest sign of economic fallout from the world’s largest oil buyer. For distillates in particular, warm winter weather across the East Coast is sapping demand for heating oil, just a few short weeks after so much concern that there wouldn’t be enough supply. There was also a technical component to the selling after chart support from the lows seen in September and November broke down. The next layer of chart support for diesel comes from the March lows that are less than 3 cents below current values, so we should find out soon if the bulls are ready to defend their ground.
All major US cash markets outside of New York are seeing discounts of 20 cents or more for prompt gasoline and distillate supplies, which proves that US refiners were up to the task of ramping up output, but now they seem to be having a hard time finding enough transportation options to get that fuel to where it’s needed. Prices to acquire space on several major pipeline systems remain elevated, although they have cooled somewhat in the past two weeks.
Italy and the US have worked out terms to keep a refinery in Sicily operating after the Russian sanctions have started to kick in for real, which is a positive for Atlantic basin supplies. Those sanctions are causing long queues of tankers in Turkish waters, as the need for new insurance paperwork causes traffic to grind to a halt.
RIN values have wiped out 4 months of gains in just a few trading sessions following the EPA’s proposal for bio-fuel blending obligations for the next few years. While RINs north of $1.50 are still quite high compared to the entire history of the RFS program, it seems the market believes the plans to allow electricity generation from biofuels to qualify for RINs to add more supply than the increased blending mandates will offset.
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View AllThe Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.
The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.
We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.
The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.
Click here to download a PDF of today's TACenergy Market Talk.
Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.
There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.
As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.
Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.