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.

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Market Talk Update 03.07.2024

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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.