Diesel Prices Smashed Their All-Time Record By 50 Cents/Gallon In The Overnight Session
Gasoline prices were already up more than 12 cents this morning, and diesel prices were up more than 25 cents, and yet it feels like a nice calm day compared to the chaos we’ve just experienced.
Diesel prices smashed their all-time record by 50 cents/gallon in the overnight session Wednesday, trading as high as $4.67 (vs the 2008 high of $4.15) before plummeting more than $1.30/gallon on the day, and settling down 97 cents. That’s a pretty volatile year for diesel prices, and to have it happen in a day is a good lesson for the bandwagon jumpers who have been trying to find new ways to “invest” in energy contracts in recent weeks.
It’s ironic that diesel prices dropped $1/gallon on the day that the DOE reported some very bullish inventory data for distillates. US diesel inventories have been tight, well below the seasonal ranges in most markets, for some time, and now we’re seeing a big drop in imports and surge in exports as the global supply chain races to reconfigure. Add to that demand levels that are above the seasonal range and you it’s easy to understand why diesel stocks dropped to an 8 year low yesterday, and the extreme backwardation that we’ve been dealing with the past few weeks. Currently the US is sitting on approximately 26 days’ worth of diesel supplies, vs a seasonal average of 35 days, and with refining capacity dropping sharply the past two years thanks to COVID and race to “go green” there’s much less cushion to absorb a supply shock like we’re experiencing.
RINs and Carbon credits saw a recovery rally as refined products plummeted Wednesday, in what appears to be some hope that prices cooling may prevent an extreme demand shock like we saw in 2008.
From a chart perspective, we’ve never seen anything like what we’ve witnessed in the past two weeks, but despite yesterday’s huge pullback, the bullish trends on the weekly charts are still intact and pointing to higher prices ahead.
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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.
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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.