Gasoline Prices Across The US Are Hovering Near 7 Month Lows This Morning

Market TalkThursday, Aug 25 2022
Pivotal Week For Price Action

Gasoline prices across the US are hovering near 7 month lows this morning, while diesel prices are trading at 3 month highs. The extreme divergence between products this week appears to be a reflection that the driving season is winding down, while much of the world is wondering how they’ll heat their homes this winter.

Oil prices are seeing modest gains as OPEC’s president indicated the cartel is open to the Saudi suggestion of cutting output to put a floor under prices, although the gains remain tempered by the potential for new supply coming online, particularly from Iran. 

Yesterday’s DOE report added to the bearish gasoline, bullish diesel dichotomy with a huge drop in demand for gasoline, while distillate days of supply continue to sit at critically low levels. In 4 out of the past 7 weeks the DOE’s implied demand estimate for gasoline has fallen below 2020 levels, when the country was largely still on lockdown. Demand for diesel in the US is holding near average levels, and production is holding strong with refining margins still elevated, but strong exports are continuing to keep domestic stockpiles at low levels. 

US crude oil exports are also holding near record highs, which is also keeping domestic stockpiles at low levels despite the ongoing release of barrels from the SPR of roughly 1 million barrels every day. Even though the US has become the world’s favorite exporter of energy supplies this year, domestic refiners are still dependent on imports of oil to optimize their output, and have a new option from Mexico to help replace the barrels they used to buy from Russia. 

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Market Talk Update 08.25.22

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Pivotal Week For Price Action
Market TalkWednesday, Jul 24 2024

Energy Futures Are Rallying Wednesday After Touching 6-Week Lows During A Heavy Sell-Off Tuesday

Energy futures are rallying Wednesday after touching 6-week lows during a heavy sell-off Tuesday. Inventory draw downs are getting some of the credit for the early bounce, while the predictably unpredictable saga of the war in Gaza is contributing to the back and forth action with headlines simultaneously highlighting ceasefire talks, and a new offensive.

The spread between RBOB gasoline in Chicago vs LA was nearly $1/gallon yesterday with Chicago-land values commanding a 65-cent premium to futures, while LA spot CARBOB held at a 30-cent discount. That spread will begin shrinking today as power has been restored to the Exxon Joliet refinery, and LA CARBOB is up more than 20 cents/gallon after transitioning to August delivery cycles.

The API reported inventory draws across the board last week with crude stocks down nearly 4 million barrels, gasoline inventories down by 2.8 million barrels and diesel inventories down by 1.5 million barrels. The EIA’s weekly report is due out at its normal time. We expect to see PADD 2 refinery runs drop by close to 200mb/day due to the downtime at Joliet and a recovery bounce in demand following last week’s holiday hangover.

The Atlantic remains quiet with no tropical activity forecast for the next week, but heavy thunderstorms are sweeping across large parts of the US, which will no double act as a damper on demand in the back half of this week. On the supply side, heavy rain and thunderstorms targeting the Beaumont/Pt Arthur and Lake Charles LA regions today puts roughly 15% of US refining capacity at risk for disruption. While these storms aren’t nearly the threat of a hurricane, we’ve already seen 2 of the refineries in that area knocked offline in July due to power issues, and we know the TX grid is proving vulnerable, so it will be a concern over the next 24-36 hours.

RIN values reached their highest levels in 6 months Tuesday, with both D4 and D6 values climbing above $.67/RIN. The rally comes as industry groups attempt to lobby congress this week to reinstate the biodiesel blenders tax credit, which is set to be replaced by the clean fuel producers credit at the end of the year. The main differences with the new CFPC rule is that it requires proof of reduced carbon intensity in order to qualify for more credit, and won’t apply to importers.

The import flows of biofuels is becoming more of a focus lately as European Union officials have slapped anti-dumping tariffs on Chinese biodiesel to alleviate pressure on local producers who have been facing negative margins for nearly 2 years and have also opened an investigation into how that Chinese bio is being certified to qualify for the various government credits that subsidize the industry.

Meanwhile, Renewable Diesel producer Braya Renewable Fuels has been charged with a dozen different health and safety violations at its converted Newfoundland refinery after an explosion that killed 1 worker and injured 7 others in 2022. In the US, another distributor settled with the EPA for more than $1 million in penalties over violations of the renewable fuel standard and other clean air program requirements.

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Pivotal Week For Price Action
Market TalkTuesday, Jul 23 2024

WTI Has Rolled To The September Contract This Morning, Putting Prompt Crude Oil Values Below $78 For The First Time In 6 Weeks

After a brief bounce Monday afternoon, energy prices are heading lower again to start Tuesday’s session. WTI has rolled to the September contract this morning, putting prompt crude oil values below $78 for the first time in 6 weeks.

News that China was cutting interest rates in a move not many saw coming Monday got some credit for both the bounce in prices, and the subsequent pullback as the market tries to guess the impact on the world’s sputtering engine for fuel demand growth.

Crack spreads are attempting to rally this week after reaching levels that would cause some refiners to consider cutting back runs, despite being in the middle of the “busy” season for gasoline demand. The overhang of diesel supply in the US is evident in the refining cracks as ULSD margins have dropped to their lowest level in nearly 2.5 years recently, removing the margin subsidy that had helped many facilities get through the lean times for gasoline.

Of course, any facilities making RBOB near the Chicago market are benefitting from the ongoing downtime at the 250mb/day Exxon Joliet refinery that’s pushed basis values north of a 60-cent premium to futures, while West Coast refiners are seeing values 90 cents lower, in a surprisingly weak seasonal value that California regulators are taking full credit for. We’ll have to wait and see what the agency has to say as the end of summer RVP squeeze unfolds.

One factor in the relative weakness in diesel this year is that Europe remains awash in natural gas supplies, which drastically reduced the need for supplemental diesel usage to support the grid. The EIA this morning highlighted how 2 warm winters and coordinated efforts to reduce demand have helped keep inventories near all-time highs despite the loss of Russian imports.

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Pivotal Week For Price Action
Market TalkMonday, Jul 22 2024

US Presidential Elections Seems To Have Been Taken In Stride With Only Minor Moves In Energy And Equity Markets

Energy markets are moving lower again to start the week after a big Friday sell-off pushed prices to 5-week lows. The latest weekend surprise in the US presidential elections seems to have been taken in stride with only minor moves in energy and equity markets.

Traders also seem to be shrugging off news of Israel’s retaliatory strikes in Yemen over the weekend and instead focusing on a weak technical outlook, ample inventories and soft demand.

Chicago continues to be the big story in cash markets as Exxon Joliet remains offline after a power outage a storm-induced power outage a week ago, and estimates still suggest it will be another week before power is restored. Chicago RBOB traded above a 60 cent premium to futures Friday, making it the most expensive gasoline in the country by a wide margin. The overhang of diesel across most of the country is evident here as well as diesel basis values in the region are holding close to even with futures despite the downtime.

Total’s Port Arthur refinery reported another upset Friday as that facility tries to recover from a power outage the week prior. The downtime at that facility has had minimal impact on basis values in the USGC as inventories remain ample and refinery runs are relatively high. We have seen some modest buying in the USGC RBOB market that has reduced the discount to futures by around 3 cents over the past week, but it seems that’s probably caused more by shippers that want to send barrels north to Chicago to supplement Joliet. The modest strength in Gulf Coast gasoline basis has pushed the premium for Colonial line 1 space below 3 cents/gallon, marking the lowest level in 2 months

A drone struck the 240mb/day Tuapse refinery near the Black Sea Monday, sparking a fire. That refinery has been struck multiple times by drones this year, and the extent of the damage at the facility is unclear.

Money managers were acting largely bearish in last week’s CFTC report, which isn’t too surprising given the heavy selling we saw to start the week. Large speculators cut length in Brent, RBOB and Gasoil contracts, while adding to the net short position in ULSD. European diesel (Gasoil) had become a popular bet recently, with managed money length reaching a two year high in recent weeks, only to see more than a third of that length wiped out last week alone. The exception to the rule last week came from WTI, which saw a net increase of more than 10,000 long positions held by money managers while open interest increased by more than 3% on the week. Given the weak finish Friday and start today below the $80 mark, those funds that decided to bet on higher WTI prices last week may be looking for a do-over now.

Baker Hughes reported the US oil rig count declined by 1 last week, reaching the lowest total since December 2021. Natural gas rigs meanwhile saw an increase of 3 rigs last week, the 2nd increase in 3 weeks, moving further away from the multi-year low set in June. The tick higher comes despite US natural gas prices dropping by 1/3 over the past 6 weeks, and may reflect the expectations for more LNG export capacity coming online in the next year which will allow more US production to reach global markets.

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