Gasoline & Diesel Are Rallying: Has The Complex Found a Floor

Market TalkWednesday, Jan 11 2023
Pivotal Week For Price Action

Diesel prices are rallying for a 4th straight session, while gasoline prices are moving higher for a 3rd straight day as lingering supply disruptions and optimism for demand seem to be helping the complex find a floor after a big selloff to start the year. Despite the recent gains, both ULSD and RBOB are still trading 10-15 cents lower than where they started the year, leaving the complex in technical no-man’s land unless they can continue this rally beyond those levels. 

Strength in basis, calendar and crack spreads for distillates this week are all indicative of the near term supply challenges being faced by some refiners that are still struggling to get their operations back to normal following the Christmas blizzard. While none of these levels are approaching the huge values we saw last spring and fall, they are much stronger than we normally see this time of year.

The exception to this strength is seen on the West Coast where torrential rains have ground demand to a literal halt in some markets, and just a figurative one in others, but the local refineries weren’t knocked offline a couple weeks ago like so many others were east of the Rockies, which is making for some soft spot markets. 

Add another US refinery to the scrap heap. The Phillips 66 Santa Maria refining facility closed last week, which went largely unnoticed since the facility was small at only 40,000 barrels/day and only partially refined crude for further processing at the company’s Rodeo facility near San Francisco, which is also scheduled to be shut down early next year and converted to RD production.

While the US continues to close and convert refineries, Asia and the Middle East continue to open new plants at a relatively fast pace. A new 140,000 barrel/day plant in Iraq is starting operations this week, with commercial production expected in March. That plant is the first new build in that country in decades, and adds to the new capacity brought online recently in Saudi Arabia and Kuwait that is shifting the flow of refined fuels globally from East to West.

The EIA’s monthly energy report forecast that the US will see GDP contract in Q1 and Q2 (which is AKA a recession) before resuming growth in the back half of the year. The report includes a new “between the lines” feature this month giving more insight into why the government sponsored analysts are predicting why oil prices will drop over the next 2 years.  Hint: They see more supply than demand. Along with the drop in oil prices, the EIA is predicting that refinery margins will also contract thanks to the aforementioned increase in refining capacity elsewhere, which will help lower refined product prices over the next 2 years. 

The API reported a huge build in oil stocks of nearly 15 million barrels last week, as Gulf Coast facilities no doubt opened their doors to imports they’d been holding off on until the new year, and refineries weren’t processing as much as planned due to the various disruptions. Gasoline stocks increased by 1.8 million barrels on the week and distillates increased by 1.1 million barrels, a sign of the typical winter demand doldrums we experience every year coming out of the holidays. The DOE/EIA’s weekly report is due out at its normal time this morning.

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

Market Talk Update 1.11.2023

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Pivotal Week For Price Action
Market TalkThursday, Feb 29 2024

It's Another Mixed Start For Energy Futures This Morning After Refined Products Saw Some Heavy Selling Wednesday

It's another mixed start for energy futures this morning after refined products saw some heavy selling Wednesday. Both gasoline and diesel prices dropped 7.5-8.5 cents yesterday despite a rather mundane inventory report. The larger-than-expected build in crude oil inventories (+4.2 million barrels) was the only headline value of note, netting WTI futures a paltry 6-cent per barrel gain on the day.

The energy markets seem to be holding their breath for this morning’s release of the Personal Consumption Expenditures (PCE) data from the Bureau of Economic Analysis (BEA). The price index is the Fed’s preferred inflation monitor and has the potential to impact how the central bank moves forward with interest rates.

Nationwide refinery runs are still below their 5-year average with utilization across all PADDs well below 90%. While PADD 3 production crossed its 5-year average, it’s important to note that measure includes the “Snovid” shutdown of 2021 and throughput is still below the previous two years with utilization at 81%.

We will have to wait until next week to see if the FCC and SRU shutdowns at Flint Hills’ Corpus Christi refinery will have a material impact on the regions refining totals. Detail on the filing can be found on the Texas Commission on Environmental Quality website.

Update: the PCE data shows a decrease in US inflation to 2.4%, increasing the likelihood of a rate cut later this year. Energy futures continue drifting, unfazed.

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
Pivotal Week For Price Action
Market TalkWednesday, Feb 28 2024

It’s Red Across The Board For Energy Prices So Far This Morning With The ‘Big Three’ Contracts All Trading Lower To Start The Day

It’s red across the board for energy prices so far this morning with the ‘big three’ contracts (RBOB, HO, WTI) all trading lower to start the day. Headlines are pointing to the rise in crude oil inventories as the reason for this morning’s pullback, but refined product futures are leading the way lower, each trading down 1% so far, while the crude oil benchmark is only down around .3%.

The American Petroleum Institute published their national inventory figures yesterday afternoon, estimating an 8+ million-barrel build in crude oil inventory across the country. Gasoline and diesel stocks are estimated to have dropped by 3.2 and .5 million barrels last week, respectively. The official report from the Department of Energy is due out at its regular time this morning (9:30 CST).

OPEC’n’friends are rumored to be considering extending their voluntary production cuts into Q2 of this year in an effort to buoy market prices. These output reductions, reaching back to late 2022, are aimed at paring back global supply by about 2.2 million barrels per day and maintaining a price floor. On the flip side, knowledge of the suspended-yet-available production capacity and record US output is keeping a lid on prices.

How long can they keep it up? While the cartel’s de facto leader (Saudi Arabia) may be financially robust enough to sustain itself through reduced output indefinitely, that isn’t the case for other member countries. Late last year Angola announced it will be leaving OPEC, freeing itself to produce and market its oil as it wishes. This marks the fourth membership suspension over the past decade (Indonesia 2016, Qatar 2019, Ecuador 2020).

The spot price for Henry Hub natural gas hit a record low, exchanging hands for an average of $1.50 per MMBtu yesterday. A rise in production over the course of 2023 and above average temperatures this winter have pressured the benchmark to a price not seen in its 27-year history, much to Russia’s chagrin.

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