We’re Seeing Another Mixed Bag For Energy Markets This Morning After A Wild Tuesday Session

We’re seeing another mixed bag for energy markets this morning after a wild Tuesday session that saw a stunning recovery in refined product prices. Strong gains overnight have been largely wiped out after the September PPI report showed that inflation is not going away, which moves the hopes of a FED pivot further into the future. RBOB prices have pulled back a nickel from their overnight highs and WTI is down nearly $2 since the report. ULSD meanwhile continues to find its own path, up nearly 7 cents despite the selling in other contracts, as the realities of an extremely tight diesel market continue to ripple across the globe.
The November ULSD contract has decoupled from the rest of the complex, staging an impressive 20+ cent rally Tuesday to settle higher even as most other ULSD contracts finished with heavy losses on the day. The spread from November to December futures has soared to nearly 35 cents this week, which would set records outside of the chaotic trading we saw in March in April. The big moves in the calendar spreads is creating more chaos in basis markets around the country as cash traders try to adjust to the big swings in futures spreads. Most notable today is that NYH ULSD is now trading 40 cents over the November futures, which puts the backwardation roughly 75 cents into December, or more than 1 cent per day.
OPEC’s oil production ticked slightly higher in September, according to their monthly oil market report released this morning. The cartel’s total output was up 146mb/day for the month, with increases from Saudi Arabia, UAE and Nigeria offsetting declines in Iraq, Iran and Venezuela. It’s worth noting that the September output is still more than 1 million barrels/day below the August target that was used as the bar for the recently announced “production cuts”. The report lowered global demand estimates for 2022 due to ongoing lockdowns in China and economic challenges in Europe. The report also noted that China’s demand loss is allowing their refiners – which are some of the only plants in the world with spare capacity this year – to ramp up exports of refined products. That change in product flow is one of several factors that have caused tanker rates in parts of the world to double compared to last year, which is also highlighted in this report.
A US judge approved a long awaited plan to auction off shares of Citgo to settle several long-delayed judgements for companies that had their assets seized by Venezuela’s government. It’s worth noting that the auction wouldn’t take place until late 2023 at the earliest, and would only sell enough shares to pay off the outstanding judgements, not the entire company, which could allow the refiner to continue operating as they’ve been doing, rather than breaking it up into pieces as had been discussed for years. Meanwhile, the US continues to try and negotiate with Venezuela to find a way to bring some of the 2 million barrels/day of oil production back to the world market that’s been missing for the past 7 years as the beleaguered nation spiraled into social chaos.
Tropical Storm Karl formed in the Gulf of Mexico Tuesday, which would ordinarily be a reason for fuel markets to get nervous, particularly with the supply network already stretched very thin. The good news with this storm is it is forecast to reverse course and head south into Mexico, so there is no threat to the oil production and refining assets on the US coast.
The EIA’s Short Term Energy outlook will be released later today, while the API and DOE/EIA weekly inventory reports are both delayed due to Monday’s quasi-holiday so the API will be out later this afternoon and the DOE report tomorrow.
Click here to download a PDF of today's TACenergy Market Talk.
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Week 48 - US DOE Inventory Recap

The API Reported Gasoline Inventories Dropped By 898,000 Barrels Last Week
Gasoline and oil prices are attempting to rally for a 2nd straight day, a day ahead of the delayed OPEC meeting, while diesel prices are slipping back into the red following Tuesday’s strong showing.
The API reported gasoline inventories dropped by 898,000 barrels last week, crude inventories declined by 817,000 barrels while distillates saw an increase of 2.8 million barrels. Those inventory stats help explain the early increases for RBOB and WTI while ULSD is trading lower. The DOE’s weekly report is due out at its normal time this morning.
A severe storm on the Black Sea is disrupting roughly 2% of the world’s daily oil output and is getting some credit for the bounce in futures, although early reports suggest that this will be a short-lived event.
Chevron reported that its Richmond CA refinery was back online after a power outage Monday night. San Francisco spot diesel basis values rallied more than a dime Tuesday after a big drop on Monday following the news of that refinery being knocked offline.
Just a few days after Scotland’s only refinery announced it would close in 2025, Exxon touted its newest refinery expansion project in the UK Tuesday, with a video detailing how it was ramping up diesel production to reduce imports and possibly allow for SAF production down the road at its Fawley facility.
Ethanol prices continue to slump this week, reaching a 2-year low despite the bounce in gasoline prices as corn values dropped to a 3-year low, and the White House appears to be delaying efforts to shift to E15 in an election year.
Click here to download a PDF of today's TACenergy Market Talk.

Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
Click here to download a PDF of today's TACenergy Market Talk.