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It’s A Mixed Bag For Energy Markets To Start Thursday’s Session

Thursday, May 12 2022
Market Talk

It’s a mixed bag for energy markets to start Thursday’s session, with Gasoline prices rising after an overnight drop, WTI coming under pressure after a Wednesday rally, while Diesel drama is dominating the price action once again.  

June ULSD futures have already seen a 22 cent swing this morning as any headline from Europe has the potential to move prices a dime or more in just a few minutes.

Some of the 30 cent pullback from yesterday’s highs are credited to Germany’s utility Uniper announcing it had found a loophole to continue purchasing Russian natural gas without violating sanctions, which may provide substantial relief for the next supply crunch. Then again, Russia is cutting off some natural gas to other parts of Germany to retaliate against sanctions, which may explain why prices have bounced 10 cents from their overnight lows. 

The DOE’s weekly report showed East Coast (PADD 1) diesel inventories reached their lowest level since they started keeping records in 1990 last month, and have dropped another 13% in the past 2 weeks.  The East Coast is suffering from 2 undeniable fundamental realities these days, first, it has been a net importer of refined products for decades, and has only increased its reliance on other producing regions in recent years. Second, it’s also the closest district to Europe, and if you put diesel on a vessel from a US Port, the Jones Act and proximity makes it easier in some instances to cross the pond than send those barrels to an East Coast port. The shortage is most notable in PADD 1B which included the central Atlantic states, and the NY Harbor delivery hub. That reality helps explain both the record-smashing price spreads we’ve seen over the past month, and the terminal outages we’re witnessing today.  

Just as we saw with the insane price spike for Jet Fuel in NY last month, eventually the price spreads will draw in reinforcements and bring prices back to reality, but in the meantime, if you hold of diesel anywhere near New York today, it’s worth $1.25/gallon or more than just about anywhere else in the US.

Gasoline stocks are nowhere near as tight as distillates on a historical level, but they too are facing logistical challenges as the world struggles to deal with the supply chain going from bad to worse over the past 3 months just in time to reach our peak demand season.

OPEC’s monthly report revised its outlook for global economic growth and oil demand lower for the balance of the year citing the “geopolitical events” in Eastern Europe (AKA a war) and COVID restrictions for the slowdown.

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