Charts Continue To Suggest Diesel Is In A Precarious Position

Market TalkFriday, Feb 24 2023
Pivotal Week For Price Action

It’s a mixed bag for energy markets to start Friday’s trading with diesel prices up 2 cents, gasoline down 2 cents and crude oil flat in the early going.

Diesel prices had their lowest settlement Thursday since prior to the war breaking out a year ago, an event that was the major factor in ULSD futures breaking just about every record on the books. The March ULSD contract also came within a penny of hitting its lowest outright value of the past 13 months before once again finding enough of a bid to avoid a technical collapse. Charts continue to suggest diesel is in a precarious position, with a major slide possible if the $2.66 range fails to hold support. If you’re a believer in the trading adage that “There’s no such thing as a triple bottom” on the charts, then a slide into the $2.50s should feel inevitable as we’ve seen lows near $2.66 three times in the past 3 weeks.

Crude oil inventories saw another large build, swelling by more than 7.6 million barrels, despite a surge in export activity that sent more than 32 million barrels of crude out of the country last week. The combined build in crude oil stocks reported over the past two weeks totals nearly 24 million barrels, even though those same reports show strong export growth and stagnant imports. Refinery runs and crude production can’t explain the big inventory gains since both were flat last week, leaving many to wonder how a government report could possibly have such confusing and misleading data. 

Don’t worry, the EIA makes it perfectly clear by reporting a 2 million barrel/day adjustment to US Crude oil supplies in each of the past 2 weeks. 2 million barrels/day X 14 days = 28 million barrels of oil that the agency has in its compiled reports and is saying has no idea how it got there.  

If you’re enjoying the confusing government data theme today, check out the PCE report that shows inflation continues to run hot and has stock markets pulling back yet again since it reinforces the idea that the FED won’t be letting up its tightening any time soon.

Los Angeles diesel basis values dropped 11 cents on Thursday, even though PADD 5 diesel inventories remain well below the 5-year seasonal range and multiple refinery issues continue to limit output in the region. Soft demand was likely the culprit in that large basis slide as 6” of rain and the first blizzard warning in parts of California in more than a decade are certainly not encouraging trucks to be on the road.

Total US Diesel inventories climbed back into their 5-year seasonal range for the first time in a year and moved above prior year levels for the first time since 2021. Diesel demand remains at very low levels for this time of the year, with minimal heating demand getting much of the blame for the worst start to a year for diesel consumption in a decade.

The US exported nearly 6 million barrels of refined products last week, but most of it wasn’t gasoline and diesel. In fact, the charts below show propane and propylene exports were on part with gasoline and diesel, demonstrating the growing importance of HGLs in the global energy mix.

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

Market Talk Update 02.24.2023

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Market TalkFriday, Jun 2 2023

Energy Prices Up Over 2% Across The Board This Morning

Refined product futures traded in an 8-10 cent range yesterday with prompt heating oil settling up ~6 cents and RBOB ending up about flat. Oil prices clawed back some of the losses taken in the first two full trading days of the week, putting the price per barrel for US crude back over the $70 mark. Prices are up just over 2% across the board this morning, signifying confidence after the Senate passed the bipartisan debt ceiling bill last night.

The EIA reported crude oil inventories up 4.5 million barrels last week, aided by above-average imports, weakened demand, and a sizeable increase to their adjustment factor. The Strategic Petroleum Reserve continues to release weekly through June and the 355 million barrels remaining in the SPR is now at a low not seen since September 1983. Exports increased again on the week and continue to run well above last year’s record-setting levels through the front half of the year. Refinery runs and utilization rates have increased to their highest points this year, both sitting just above year-ago rates.

Diesel stocks continue to hover around the low end of the 5-year range set in 2022, reporting a build of about half of what yesterday’s API data showed. Most PADDs saw modest increases last week but all are sitting far below average levels. Distillate imports show 3 weeks of growth trending along the seasonal average line, while 3.7 million barrels leaving the US last week made it the largest increase in exports for the year. Gasoline inventories reported a small decline on the week, also being affected by the largest jump in exports this year, leaving it under the 5-year range for the 11th consecutive week. Demand for both products dwindled last week; however, gas is still comfortably above average despite the drop.

The sentiment surrounding OPEC+’s upcoming meeting is they’re not likely to extend oil supply cuts, despite prices falling early in the week. OPEC+ is responsible for a significant portion of global crude oil production and its policy decisions can have a major impact on prices. Some members of OPEC+ have voluntarily cut production since April due to a waning economic outlook, but the group is not expected to take further action next week.

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

Pivotal Week For Price Action
Market TalkThursday, Jun 1 2023

Prices Are Mixed This Morning As The Potential Halt In U.S. Interest Rate Hikes

Bearish headlines pushed refined products and crude futures down again yesterday. Prompt RBOB closed the month at $2.5599 and HO at $2.2596 with WTI dropping another $1.37 to $68.09 and Brent losing 88 cents. Prices are mixed this morning as the potential halt in U.S. interest rate hikes and the House passing of the US debt ceiling bill balanced the impact of rising inventories and mixed demand signals from China.

The American Petroleum Institute reported crude builds of 5.2 million barrels countering expectations of a draw. Likewise, refined product inventories missed expectations and were also reported to be up last week with gasoline adding 1.891 million barrels and diesel stocks rising 1.849 million barrels. The market briefly attempted a push higher but ultimately settled with losses following the reported supply increases implying weaker than anticipated demand. The EIA will publish its report at 10am this morning.

LyondellBasell announced plans yesterday to delay closing of their Houston refinery, originally scheduled to shut operations by the end of this year, through Q1 2025. The company “remains committed to ceasing operation of its oil refining business” but the 289,000 b/d facility remaining online longer than expected will likely have market watchers adjusting this capacity back into their balance estimates.

Side note: there is still an ongoing war between Russia and Ukraine. Two oil refineries located east of Russia's major oil export terminals were targeted by drone attacks. The Afipsky refinery’s 37,000 b/d crude distillation unit was struck yesterday, igniting a massive fire that was later extinguished while the other facility avoided any damage. The attacks are part of a series of intensified drone strikes on Russian oil pipelines. Refineries in Russia have been frequently targeted by drones since the start of the military operation in Ukraine in February 2022.

Pivotal Week For Price Action
Market TalkThursday, Jun 1 2023

Week 22 - US DOE Inventory Recap