Gasoline Eases, Managers Stay Bullish on Diesel

Market TalkMonday, Aug 14 2023
Pivotal Week For Price Action

Gasoline prices are leading the energy complex lower to start the week, threatening to break the bullish trend lines that have been pushing prices higher since the 4th of July. 

We’re seeing some potentially pivotal short term support levels tested in early trading this morning.  The $3.09 range that was a temporary ceiling (aka resistance) for ULSD now looks like it might be the floor (support) near term.   If prices can hold above that level, the flag pattern established after the 11-day winning streak will still be in play, keeping the door open for a run at $3.50.  If we see that level break and hold however, we could soon see prices drop back below $3. 

Money managers are still bullish on diesel prices, increasing net length for both ULSD and Gasoil contracts again last week, continuing to bet that prices can keep climbing after 7 straight weeks of gains.   The big funds look like they may have thrown in the towel on RBOB prices however with new shorts being added and a healthy amount of long liquidations last week.  If those funds continue to liquidate, we could see a snowball effect on gasoline prices heading lower, particularly if RBOB fails to hold above the $2.90 range this morning.

Baker Hughes reported that the US oil rig count held steady last week, snapping an 8-week slide, but the natural gas rig count dropped by 5 to reach its lowest level since February 2022.  

There were several refinery hiccups reported to the TCEQ over the weekend, which so far don’t look like they’ll be major factors in the market this week.

Marathon reported yet another leak at its Galveston Bay refinery Friday, after announcing it would take months to fully repair operations at the facility after the deadly fire in May.

Delek reported another upset at its Big Spring facility that is usually good for a flaring event every couple of weeks.

A facility you’ve probably never heard of known as the gas to gasoline plant in Beaumont was shut down yesterday after a valve failed.  That facility is part of a project aimed at ultimately producing renewable gasoline after converting waste biomass to methanol, but earlier reports on the facility suggest it won’t be making any finished gasoline until next year.

After a quiet few weeks for tropical activity in the Atlantic basin, the NHC is tracking 2 potential systems this morning, although both are given low (20%) odds of being named.

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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Pivotal Week For Price Action
Market TalkWednesday, Jul 17 2024

Week 28 - US DOE Inventory Recap