Diesel Bubble Burst Overnight Prices Dropping More Than 14 Cents

The diesel bubble burst overnight after the biggest daily rally since early June pushed ULSD futures within 2 cents of an 18 month high. Prices dropped more than 14 cents from the overnight peak at one point this morning, and are currently trading down around 11 cents for the day, dragging the rest of the complex along for the ride.

The December ULSD contract reached a high of $2.7172 overnight, which is 61 cents above its low from October 17th. A sharp pullback is certainly not too surprising from a technical perspective as values moved into severely overbought territory during the runaway rally, and it’s likely we were witnessing a short squeeze during Tuesday’s severe spike in time spreads, crack spreads and outright values.

The sharp pullback sets up a bit of a double top on the chart with values coming close to what we saw during the short-lived spike of the 12 day war. That resistance will be the near term test to see if the latest spike in volatility is just the start of a bigger market move, or the end of a strong 1 month rally. See the chart below for how this recent bout of market shaking compares to other events over the past 2 decades.

Beyond the potential technical implications, signs that the U.S. Treasury is allowing more time for Lukoil’s European refineries to find new owners with buyers like Chevron, Exxon and several PE firms all mentioned as suitors, suggests that the European supply crunch caused by U.S. sanctions on Russian enterprises may be short lived. On the other hand, the U.S. is reportedly considering another round of sanctions targeting Russian energy supp

The Ukrainians still get a vote in this as well, and hit another Russian refinery with a drone attack overnight with Energy News Today reporting that the 72mb/day Ilsk refinery was struck for a 6th time.

Cash markets around the U.S. weren’t buying the hype Tuesday, with differentials vs December futures plummeting, and those already trading against January futures still seeing some selling pressure. That phenomenon highlights how this is primarily an East Coast issue with incremental supplies in the Atlantic basin seeing a bit of a bidding war as suppliers try to figure out how to best take advantage of the potential shortages caused by Russian-linked refineries across Europe having an uncertain outlook on operations.

The API reported inventory builds across the board in its weekly estimate with crude oil stocks up 4.4 million barrels, gasoline up 1.5 million and diesel stocks up 600,000 barrels. The DOE’s weekly report is due out at its normal time this morning.

Can’t imagine California will follow their lead: British government officials are looking at repurposing recently shuttered refineries to restock their ammunition supplies as the war in Ukraine has rapidly depleted artillery shells for several countries.