Energy Markets Limp Into Weekend Hovering Near Breakeven As Diesel Stalls Out

Energy markets were limping into the weekend hovering near breakeven levels for most of the morning as the big rally in diesel prices takes a breather after prices reached a fresh 2 month high overnight. After a quiet overnight session RBOB futures are attempting a rally heading into the 8 o’clock hour, on the heels of stronger equity markets. ULSD futures broke through their chart resistance around the $2.40 mark Thursday and followed through with more buying before stalling out just below $2.44, nearly 17 cents above Monday’s low trade.

A major driver of the diesel rally continuing after gasoline and crude oil prices leveled out was the expected shift in Russian diesel exports which some believe is encouraging more fund money to jump in with new bets on higher prices to come. Russia confirmed Thursday that it was restricting diesel exports until the end of the year but clarified that it was limiting the restrictions to traders and resellers, not refiners themselves, which means most exports can continue, assuming they can dodge the drones of course.

Speaking of which, Ukraine hit another Russian refinery overnight, this time hitting a 180mb/day plant in southern Russia that was also hit in August. It’s still unknown exactly how much output is offline due to the attacks, but at least 15 different facilities (40% of Russia’s total) have been hit, and estimates are that at least 1 million barrels/day of refined product production (around 20% of total capacity) has been taken offline as a result.

The EIA is finally starting to publicly recognize its data-gap on diesel inventories by not including bio and renewable diesel in its weekly status reports. A note from the agency this week highlighted the influence the renewable products have had first with building up total inventories during the RD rush of 2023-2024, and to reduce them this year as so much production has gone away. Heavy export demand is also contributing to lower domestic diesel inventories, and that seems likely to continue following the closure of multiple European refineries this year and the Russian shortages.

The Dallas FED’s energy survey showed decreasing activity in the Oil & Gas sector during the 3rd quarter, with executives averaging a guess of $63 for WTI at year end at $69 2 years from now. One other notable item from this survey was that the majority of executives expect that the shale drilling technology that’s been key to the U.S. energy expansion in the past decade will soon be used overseas, which will help keep the supply overhang in place around the world.

A notable shift in (soon to be) Imelda’s path has the storm turning back out to sea after brushing the South Carolina coast next week. While that could end up being good news if it keeps heavy rains more offshore than on land, some models suggest the storm may sit off the Carolina coast for almost 4 days which could actually increase the amount of rain that is dumped on the area and bring more flooding. While Humberto isn’t going to reach shore, it is influencing Imelda’s path which is part of why it’s so unpredictable just a few days before it’s expected to reach the coast. Part of the challenge for residents of the South East is that they’re already set to experience heavy rains from onshore storms before the tropical systems hit next week, which may increase flooding. None of this is a supply threat, although the ports will likely slow operations as the storm passes, but it could certainly hurt