Energy Futures Attempting Reversal After Solid Week Selling

Energy futures are attempting a reversal Thursday rally after a solid week of selling. Some buyers finally stepped in Wednesday afternoon which prevented a technical breakdown after products dropped by 15 cents over the prior week.

The U.S. will apparently be pulling Chevron’s permit to export Venezuelan oil in the latest political ripple for the market, although the official details have not yet released by the Treasury dept. Assuming that’s true, it will force Chevron to replace around 200mb/day, which isn’t a huge number compared to the 6 million barrels/day of oil the US imports, but will certainly create logistical challenges.

Meanwhile, the White House is now saying that tariffs on Canada and Mexico are still planned for March 4th, despite the President saying in a news conference Thursday that they’d be delayed to April 2, which will leave markets in a bit of a lurch this weekend if more clarity doesn’t emerge.

Yesterday’s DOE report highlighted another healthy increase in diesel inventories as PADDs 2 and 3 both ticked sharply higher, while the East and West Coasts both held below the low-end of their seasonal range. Even when adding in RD stocks, PADD 5 inventories are holding at the bottom of their seasonal range, with the sudden loss of numerous RD supply options currently shocking the market into pricing that product above CARB diesel and the LCFS/CAR fees. Diesel imports surged to their highest levels in 2 years primarily driven by barrels moving to the East Coast to take advantage of the strong values left behind by January’s cold snap that have largely evaporated over the past 2 weeks.

Gasoline inventories bucked their typical seasonal trend with a large increase in PADD 2 leading nationwide inventories higher for the week. Winter weather can be blamed for a good portion of the demand slump that contributed to that build. PADD 2 inventories will be something to watch in the coming weeks as mid-con refiners wrestle with the potential need to produce 7.8lb RVP gasoline if their states missed Wednesday’s deadline to opt out of their plan to forego the EPA’s 1lb RVP waiver for ethanol blends. It is possible congress passes a law between now and the end of April deadline, but that doesn’t leave any room for error, and we’re already seeing basis differentials in the region tighten up as the pipeline systems in the area begin their preparations.

U.S. Ethanol inventories reached a record high last week as domestic production holds near peak levels and exports have slowed. Ethanol prices had already been pulling back from 5 month highs over the past 2 weeks thanks in large part to the fall in corn and gasoline prices, and that news seemed to accelerate the sell off.

Refinery runs ticked higher on the week with increases in PADDs 1, 2, and 3 offsetting declines in PADDs 4 and 5. PADD 5 run rates are still holding above levels we saw this time last year and in 2023, despite the PBF Martinez refinery remaining offline and the P66 Rodeo refinery completing its conversion to renewable production last year. Energy News reported earlier this week that Valero has opted to delay scheduled maintenance at its Benicia CA refinery until next year so it can continue operating during the PBF downtime.