Diesel Prices Have Dropped 45 Cents From Monday’s High

Market TalkThursday, Sep 15 2022
Pivotal Week For Price Action

Diesel prices have dropped 45 cents from Monday’s high as demand concerns both domestically and globally are putting heavy downward pressure on prices, and RBOB and WTI are now joining in on the selling after resisting the pull lower Wednesday. ULSD futures are still more than 10 cents higher than their August lows, but look like they could make a run at those levels soon, with a move below $3 likely if that support breaks.

Some suppliers will be breathing easier this morning after reports that a “tentative deal” was reached to avert a nationwide railroad strike that could have created chaos in numerous commodity markets. Ethanol supplies in particular were troubling many suppliers this week as it could have left many terminals with plenty of gasoline in the tank, and yet no E10 available to sell at the rack, in addition to numerous concerns about Biodiesel and DEF supplies nationwide. Watch the price reaction in the grain, renewables and RIN markets today to see whether or not the market believes this deal will actually make it to reality.

The European Commission proposed an emergency energy market intervention plan Wednesday that includes mandatory reductions in demand for member countries, a cap on electricity prices from renewable, nuclear and coal sources, and a “temporary solidarity contribution on excess profits” for oil and gas sectors that somewhat like a Soviet-style solution to the Russian energy problem. The plan did not include a price cap on Russian energy purchases as had been previously proposed.

The IEA highlighted how Chinese lockdowns are leading a slump in global energy demand, but noted that demand is still growing, just not as fast as it was expected to this year. The monthly report also noted that EU embargos on Russian oil have not yet come into effect, and will do so just in time for the coordinated SPR releases to come to an end, leaving markets susceptible to new price spikes. The report highlights the specific concerns around distillate supplies, as Europe still does not have a solution for the 600mbday of Russian diesel it will stop importing this winter, and refinery capacity constraints severely limit their options. 

Wednesday’s DOE report showed a large build in US Commercial crude inventories, but total oil stocks including the SPR declined, proving the IEA’s point that supplies may not look so strong once the record releases come to an end in two months. US crude oil output has stagnated over the past two months as labor logistical challenges continue to limit the growth in production. The report estimated that US diesel demand dropped by 13% to its lowest level of the year last week, which certainly isn’t helping encourage any buyers to step in at these lower levels, even though most PADDs have inventories well below normal levels.

Want to understand why California gasoline prices surged by more than $1/gallon last week? Take a look at the PADD 5 gasoline stocks chart below. Also note the huge decline in Midwestern (PADD 2) gasoline stocks the past 2 weeks as regional refiners have struggled to stay online, and shows how important the RVP waivers issues after BP’s refinery went offline were to avoid a price spike like we’ve seen on the West Coast. 

Tropical storm Fiona was named overnight, and most models continue to suggest the storm will turn north by Monday and not threaten the Gulf of Mexico, making it a non-event for energy supplies. Most models keep this storm moving away from the East Coast as it moves north, but a few suggest that a landfall near the Carolinas is possible next week.

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Market Talk Update 09.15.22

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Pivotal Week For Price Action
Market TalkTuesday, Nov 28 2023

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.

Pivotal Week For Price Action
Market TalkMonday, Nov 27 2023

After Another Black Friday Selloff Pushed Energy Futures Sharply Lower In Last Week’s Holiday-Shortened Trading

After another Black Friday selloff pushed energy futures sharply lower in last week’s Holiday-shortened trading, we’re seeing a modest bounce this morning. Since spot markets weren’t assessed Thursday or Friday, the net change for prices since Wednesday’s settlement is still down more than 6-cents for gasoline and almost 5-cents for diesel at the moment.

OPEC members are rumored to be nearing a compromise agreement that would allow African producers a higher output quota. Disagreement over that plan was blamed on the cartel delaying its meeting by 4-days last week which contributed to the heavy selling. The bigger problem may come from Russia, who announced plans last week to increase its oil output once its voluntary cut agreement ends now that price cap mechanisms are proving to be ineffective

While an uneasy truce in Gaza held over the weekend, tensions on the Red Sea continued to escalate with the US Navy intervening to stop another hijacking and being rewarded for its efforts by having missiles fired at one of its ships.  

RIN values came under heavy selling pressure Wednesday afternoon following a court overturning the EPA’s ruling to deny small refinery hardship waivers to the RFS. Those exemptions were a big reason we saw RINs drop sharply under the previous administration, and RINs were already on due to the rapid influx of RD supply this year.

More bad news for the food to fuel lobby: the White House is reportedly stalling plans to allow E15 blending year-round after conflicting studies about ethanol’s ability to actually lower carbon emissions, and fuel prices. Spot prices for ethanol in Chicago reached a 2.5 year low just ahead of the holiday.  

Baker Hughes reported the US oil rig count held steady at 500 active rigs last week, while natural gas rigs increased by 3. 

The first of perhaps several refining casualties caused by the rapid increase in new capacity over the past two years was reported last week. Scotland’s only refinery, which has a capacity of 150mb/day is preparing to shutter in 2025.

The CFTC’s commitment of traders report was delayed due to the holiday and will be released this afternoon.

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

Pivotal Week For Price Action
Market TalkWednesday, Nov 22 2023

Week 47 - US DOE Inventory Recap