Energy Markets Slide As Peace Talk Hopes Weigh On Crude And Distillates

The energy complex is drifting lower this morning, led by the HO contract (-1.8%), in anticipation of a potential Russia-Ukraine peace agreement that would release more Russian crude oil into an already oversupplied global market. WTI (-.9%) and RBOB (-1.1%) futures are pulling back from yesterday’s gains in sympathy with their distillate counterpart, supported by a broader ‘risk-on’ sentiment seen in pre-market equities trading.

Marathon reported an unplanned flaring event at its 384.5 mbd Los Angeles refinery yesterday, according to the South Coast Air Quality Management District. This is the third time the refiner has made headlines in the past week, notifying authorities of upsets at its El Paso and Texas City plants last Tuesday.

We are through the harvest season and into the winter demand slump in the Midwest region of the U.S., and it shows. ULSD basis differentials have dropped off in the Group 3 (-.0900) and Chicago Complex (-.2700) market hubs this week and will likely continue dropping as we head through the holidays. Whether we see any relative strength return for diesel in the Midwest come spring time is a question many are likely asking the current administration.

Premiums over the costs to ship product up the colonial pipeline have remained elevated this week as shippers seek to take advantage of the difference between Houston and New York gasoline and diesel prices. Positive value on both Lines 1 (gasoline) and 2 (diesel) are expected to remain positive through the winter months as Gulf Coast basis differentials sink going into the holiday season.