Gasoline Futures Leading Energy Complex Higher

Market TalkThursday, Mar 7 2019
Gasoline Futures Leading Energy Complex Higher

RBOB gasoline futures are leading the energy complex higher once again to start Thursday’s session, reaching a fresh 4 month high and punching through chart resistance at the 200 day moving average overnight. A large draw in gasoline inventories seems to have helped the annual spring gasoline rally with its latest push higher even though oil and distillate prices are lagging.

If RBOB futures can hold above the 200 day moving average (known historically as a level that large funds have used as an indicator of strength vs weakness) there is not much on the charts to prevent a run at the $2 mark over the coming weeks. WTI and ULSD futures may continue to act as a drag on the gasoline rally however if they can’t find enough momentum to break out of their sideways range.

According to the DOE, US refinery runs increased for a 2nd straight week, suggesting that we have made the turn for spring maintenance, and should see run rates increase over the next 6 weeks. One potential flaw with that typical-seasonal pattern: More unplanned refinery downtime. After Valero reported its McKee FCC went down again last week (for the 2nd time this year) multiple explosions were reported at HollyFrontier’s plant in El Dorado KS, and the Richmond CA refinery was also reported to have more problems.

Why are gasoline prices up a nickel since the DOE reported a 12% increase in PADD 1 refining rates last week? Gasoline stocks along the East Coast dropped by more than 3 million barrels, and even with the increase (from an 8 year low last week) refinery runs are still below the bottom end of their seasonal range.

Why are crude oil prices rallying even though oil inventories built by 7 million barrels last week? Net imports were up more than 1 million barrels/day on the week, accounting for an 11 million barrels increase based on trade flows, meaning the headline value is not likely reflective of lower demand.

The EPA reported that model year 2017 vehicles reached a record high fuel economy, and a record low for GHG emissions in their latest automotive trends update. As the chart below shows, manufacturers are using a wide range of technologies from turbo-charged engines (which has been driving up demand for premium gasoline) to more advanced transmissions and hybrid engines to achieve these targets.

Today’s head scratcher: With the world racing to produce more diesel ahead of expected shortages when the IMO 2020 rules take effect, why would Russia’s Rosneft delay upgrading projects at 5 of its refineries that would allow for increased diesel production? Are they tight on funds or betting on non-compliance to manage through the new rules?

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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.

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

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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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Week 28 - US DOE Inventory Recap