Energy Markets Hovering At Break Even Levels After 2 Days Of Strong Gains

Energy markets are limping into the long weekend with futures hovering near break even levels after 2 days of strong gains led by the latest surge in diesel prices.

Reminder that while tomorrow is a U.S. Federal holiday, and very few people in the industry will be working in an office, futures will trade in an abbreviated session tomorrow morning which keeps the door open to some price changes heading into the weekend even though spot markets won’t be assessed.

Yesterday’s DOE report showed that total U.S. diesel inventories are hovering near 20 year lows, which certainly seems to justify the strength in diesel prices and spreads but is far less impressive once you factor in roughly 6 million barrels of Renewable Diesel and 3 million barrels of biodiesel that aren’t included in the weekly figures. That phenomenon is less of a factor on the East Coast however, and there are clear signs that some vessels were sold to foreign destinations during the brief price spike 2 weeks ago which is creating temporary shortages at several terminals in the region. The backwardation and basis differentials are still a far cry from what we saw when a serious diversion of diesel supplies happened in 2022 and 2023, but the current values will still keep traders on edge as they want to avoid buying today and selling a week from now at a substantially lower price.

BP reported a brief flaring event at its Whiting Indiana refinery on the outskirts of Chicago that lasted around 12 hours into Tuesday morning. The flaring was first reported on the facility’s Facebook page, with the flaring report garnering 25 likes, whereas the normal operations alert only earned 8. Chicago basis values for both gasoline and diesel had increased in the days leading up to the event but seemed unmoved by the upset yesterday.

The storm system currently bringing heavy rains to much of Florida has increased its odds of being named from 20% to 60% in the past few days according to the latest update from the National Hurricane center. Even if the storm does get named, it’s not a refinery threat given its location off the Carolina coast, and AccuWeather forecasts project a “near zero” threat for tropical wind and rain in the NYH so it appears that it will likely have more impact on demand than supply as heavy rains will keep drivers off the roads.

The BLS estimated 147,000 jobs added in the U.S. last month, while the April and May readings were revised higher by a combined 16,000. Both the headline and U-6 unemployment rate ticked 1 tenth of a percent lower, with the reported rate at 4.1% while the less manipulated U-6 rate is at 7.7%. The market reaction to the report was muted, but it seems unlikely that the soft but steady labor reports will do anything to sway the FED’s wait and see approach to interest rate reductions.

Other notes on the DOE’s weekly status report. See charts attached.

Crude built on an uptick in imports and exports hitting a 2025 low, despite the adjustment to crude stocks also hitting a 2025 low. Most of the build came out of PADD 3 but storage levels there are still running below their 5-year range. Refinery runs picked up everywhere except PADD 1 and continue to hold above the 5-year range, as all PADDs are now operating at rates above or near the top end of their respective ranges.

Diesel demand picked up again last week, leaving total diesel stocks about 7 million barrels below the seasonal bottom of their 5-year range. Outside of PADD 4, which is below average, stocks are near or below the bottom end of their 5-year ranges in each PADD. The monthly stats show renewable diesel dropped 1.23mm barrels across the country, 65% of which left PADD 5. Gasoline saw the opposite effect, with substantially weakened demand leading to a large inventory build. Most PADDs are hovering around seasonal norms with the exception of PADD 2, which makes up about 75% of the 1.5-million-barrel deficit between total U.S. gas stocks and the 5-year average.