Don't Get Too Comfortable Before This Holiday Weekend; Diesel Futures Look Temporary

Energy markets are seeing a wave of selling as we approach the holiday weekend after reaching multi-month highs earlier in the week. ULSD futures are leading the slide, with the prompt October contract down nearly 13 cents on the day, while October RBOB is down about a nickel. If you want a fundamental reason for the pullback, you could make a case that the pause in fighting following the flare-up to start the week is hinting that Iran may be losing its grip, and if you prefer a technical argument, you can simply say that diesel prices were overbought and due for a correction after rallying nearly 80 cents in just 5 days.

October ULSD futures have pulled back more than 25 cents after reaching a 4.5 year high of $4.7661 Wednesday (just one week after reaching a low of $3.9660) but are still poised for healthy weekly gains of around 15 cents, and maintain a bullish trendline on the weekly charts that suggests there’s still a good chance we’ll see a run at the $5 mark this fall.

Retail diesel prices are sitting at record highs in the U.S. heading into the Labor Day weekend, and are expected to surpass all-time highs on the next reading based on this week’s price increases, with fall harvest demand still ahead of us. Gasoline prices are of course also elevated, but still trail behind the levels we saw during 2008 and 2022, even before adjusting for inflation, partly because much of the country has already moved towards winter gasoline grades thanks to the EPA’s fuel waivers.

The table below compares U.S. fuel prices to those of the top 10 consuming countries globally, which highlights how the U.S. continues to enjoy less-expensive gasoline (even though most of the top 10 have price controls or subsidies); domestic diesel prices are actually higher than in many international markets. Iran’s retail fuel prices are noteworthy as the country’s heavy subsidies make them essentially free, despite runaway inflation and requests from the government to reduce consumption due to ongoing shortages caused by the U.S. blockade.

NYMEX contracts will trade in an abbreviated session Monday, but will not post a settlement, and spot markets won’t be assessed during the US holiday. Most rack prices will be set to run through Tuesday, but will all leave the door open to changes should conditions warrant.

The EIA on Thursday highlighted ERCOT’s record-setting power load, which has now lasted for 6 straight weeks, as a typical Texas late-summer heat wave coincides with new demand from data centers. After the TX Governor placed a moratorium on new data center connections to the grid, ERCOT is auditing several new proposals.

Marathon reported another upset at its 630mb/day Galveston Bay (TX City) refinery Thursday, with a hydrotreating unit springing a leak that forced it to be depressurized.

Energy News Today reports that both Valero and Motiva have restarted units that were knocked offline by TS Edouard earlier in the week, which is a big relief for refined product markets that don’t have much in reserve to cushion the blow of a(nother) major supply disruption.

The August jobs report showed a healthy recovery in US employment after a bleak July report. Headline figures showed 162,000 jobs added in August, while the June and July estimates were revised up by 55,000 combined. The headline unemployment rate (“U-3”) was unchanged for the month at 4.1%, while the less-manipulated U-6 rate dropped 2 tenths to 7.7%. The Dallas FED this week published a study on AI’s automation impact on the workforce in Texas. If you don’t have time to read it, you could ask Claude to summarize it for you, or just be glad you’re not a new college graduate.