US Diesel Inventories Declined For A 7th Straight Week, Keeping Total Stocks At The Low End Of The Seasonal Range

Market TalkThursday, Mar 7 2024
Pivotal Week For Price Action

It’s been a choppy start to Thursday’s trading with energy futures flipping back and forth between gains and losses, after some bullish demand figures in the DOE report Wednesday sparked a healthy rally.

Energy markets appear to be shrugging off news that the latest Houthi Missile attack caused the first fatalities aboard a merchant ship in the Red Sea conflict while new reports suggest the undersea cables that were cut last week may have been caused by a sinking ship.

US diesel inventories declined for a 7th straight week, keeping total stocks at the low end of the seasonal range even though PADDs 2 and 4 remain at the top end of their seasonal range. The wildcard in diesel stocks of course is PADD 5 where the renewable diesel that’s been flooding the west coast over the past several months still doesn’t show up in the weekly stats, meaning total stocks are likely 4 million barrels or so above the official PADD 5 estimate, which is why we’re seeing weak basis values despite the DOE showing inventories below their seasonal range. The DOE’s estimate for diesel demand also saw a huge increase last week, marking a 4th week of big back and forth swings, proving more that the agency’s estimates are error prone than anything else. The good news if you’re a diesel producer is that the DOE’s figures are understating diesel demand somewhere in the 4-5% range due to RD not being factored into the numbers.

Gasoline stocks declined for a 5th straight week, following their typical seasonal pattern of drawing down inventories as the spring RVP transition kicks in. One major difference in the gasoline figures compared to the past few years is that the East Coast (PADD 1) is actually seeing inventory builds thanks in large part to above average imports and the return of previously idled local refining capacity, whereas PADDs 2 and 3 are seeing big declines. That excess supply stretching from New York to New England looks like it’s already backing up demand for resupply, which helps explain why Colonial Line 1 space is trading for minus 5 cents/gallon these days. That overhang will need to be dealt with in the next several weeks if shippers are going to get their tanks turned ahead of the spring deadline.

As expected, refinery runs saw a large increase of nearly 5% last week as several of the country’s largest refineries return from maintenance. The Gulf Coast refining hub is now running at higher rates than it was this time last year, but remains far below where runs were prior to the January freeze.

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

Market Talk Update 03.07.2024

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Pivotal Week For Price Action
Market TalkFriday, Apr 19 2024

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.

Pivotal Week For Price Action
Market TalkThursday, Apr 18 2024

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.

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