West Coast Diesel Differentials Continue To Surge This Week
Oil prices are seeing modest gains to start Wednesday’s session following a big decline in inventories, while refined products are seeing modest losses in the early going with a pair of bearish fundamental notes having ULSD lead the move lower once again.
Adding to the downward pressure on distillates - that are currently trading down about 13 cents for the week - are reports that China will increase export quotas next month, allowing the country’s newly minted refineries to crank up their sales overseas. The $3.20 range still looks pivotal for ULSD futures as both Monday and Tuesday saw intraday trading below the weekly trend-line near that level, only to settle above. If that recovery trend continues, there’s a good chance of a big rebound in the back half of the week, but it will have to happen soon as we’ll see a 4 cent drop in values when October takes the prompt spot Friday.
The API reported a huge draw in crude oil inventories of more than 11 million barrels, while gasoline stocks increased by 1.4 million barrels and diesel stocks increased by 2.5 million. The EIA’s weekly report is due out at its normal time this morning and will offer the first glimpse at the actual impact of the numerous refinery issues over the past week that have stirred up both futures and some cash markets.
West Coast diesel differentials continue to surge this week, with San Francisco, LA and PNW markets all trading at or above 50 cent premiums to futures. Gasoline premiums have been holding at high differentials of 60-70 cents over October RBOB futures as the region moves through its last month of summer-grade product with last year’s spike to $2/gallon premiums still fresh on many minds.
Hurricane Idalia reached category 4 status overnight before making landfall in Florida near the Big Bend Wildlife Management Area this morning as a major Category 3 storm. The landfall was roughly 160 miles north of Tampa Bay, which seems to be far enough to have avoided major damage as at least one Tampa Bay terminal has already resumed loading operations this morning. Meanwhile, other terminals across Florida such as Orlando, Jacksonville, Niceville and Pensacola all seem to be operating so far despite the threats of heavy rain and potential power outages. More potential good news is that the latest projected path has the storm turning east faster than earlier projections which should lessen the time spent over the flood-prone Carolinas.
We’re still 2 weeks away from the typical peak of hurricane activity, and the NHC is tracking 4 other storms in the Atlantic, though fortunately none of them looks to be a threat to make landfall in the US.
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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.