Diesel Rally Runs Out Of Steam After 7 Straight Days

The rally in diesel prices ran out of steam after 7 straight days that added nearly 34 cents/gallon from the low reached on October 17. The November ULSD contract peaked at a high of $2.4650 on Monday and is now trading below $2.40 as it leads the energy complex back lower. While refinery attacks, maintenance and sanctions all contributed to the runup in prices, there’s little in the way of headlines to explain the pullback, suggesting it’s more technical in nature as a combination of chart resistance and the end of a furious short covering rally both appear to be in play this week.

There are the typical rumors that OPEC and Friends are planning another small output increase at this weekend’s meeting, although at this point any planned increases may only serve to replace the potential lost output of Russian exports as new EU and U.S. sanctions on Russia’s 2 largest producers take hold.

Total reported an upset at its 238mb/day Port Arthur refinery Monday, joining its neighbors Motiva and Valero with unplanned flaring events following weekend storms. The trio of Port Arthur upsets contributed to a modest 1.5 cent rally in USGC gasoline basis values, which put downward pressure in Colonial line space values which had reached a 15 month high last week. Meanwhile, both Valero and Chevron’s Houston area refineries also reported flaring activities Monday as they undergo planned maintenance activities.

The big move in basis differentials Monday came from the mid-continent where Chicago RBOB saw heavy selling after the 440mb/day BP Whiting refinery came back online following a fire on Oct 17 and a power loss Oct 24.

A sanctioned Russian oil tanker ran aground in the Suez canal this morning, blocking at least 20 ships so far from transiting north through the waterway. Many shippers have been avoiding the canal over the past 2 years due to Houthi attacks on ships moving through the Red Sea, and the vessel was said to be refloated, so this event will not have the outsized impact that was seen in 2021 when a ship blocked the canal for 6 days and held up nearly $10 billion worth of goods. The fact that the “shadow fleet” ship was sailing to a Chinese port will no doubt add to the controversy swirling around Chinese and Indian companies buying oil from the shadow fleet, as the EU and U.S. try to close the loophole to put more pressure on Russia to negotiate an end to the war in Ukraine.

Speaking of which, Lukoil announced plans to sell its international assets, just a few short days after the U.S. sanctioned the company, which is one of Russia’s largest oil companies and has substantial assets in Europe and the Middle East including 3 refineries and a handful of terminals.

Hurricane Melissa is battering Jamaica this morning as a record-setting Category 5 storm. While there’s no doubt that the storm will leave a path of devastation, the country’s lone refinery, a small 36mb/day plant in Kingston, looks like it will avoid a direct hit. Meanwhile, the handful of fuel terminals scattered around the Bahamas that help shippers work around Jones Act restrictions all look like they’ll avoid the worst of the storm as it moves through so energy supply will be very low on the list of concerns when recovery efforts begin. Meanwhile, there are no other storms on the NHC’s radar currently, and as we move into November the odds start to drop quickly, meaning there’s a good chance the U.S. could avoid a hurricane landfall for the first time in 9 years.

Today’s interesting read courtesy of Freight Waves: How the U.S. trucking industry solved its driver shortage by using a Federal loophole created in 2022 to allow anyone to “train” new CDL drivers.