Equity Markets Rallied To Fresh Record Highs Wednesday After The FED Increased Its GDP Estimates For The US

Energy futures are moving modestly lower for a 2nd day as the attacks on Russian refineries seem to have subsided. ULSD futures are once again leading the move lower and are now down more than 12 cents since Monday, while RBOB and WTI are still acting like this pullback is just a brief consolidation during a larger move higher.

Equity markets rallied to fresh record highs Wednesday after the FED increased its GDP estimates for the US, and stuck to its outlook that it would likely cut interest rates 3 times later in the year. Even though the correlation between equity price moves and gasoline and crude oil prices have strengthened lately, and those prices did end the session off the lows, it doesn’t seem like the enthusiasm in the stock market is carrying over as much into the energy arena as it’s done in years past. ULSD prices meanwhile continue to have essentially no relationship to moves in stocks and continue to look weak even though the rest of the complex looks like it wants to push higher for a real spring rally.

The DOE’s weekly report echoed the sentiment that gasoline and oil prices have some momentum while diesel has plenty of headwinds.

Gasoline inventories continued to follow their seasonal pattern and declined for a 7th straight week as we pass the half-way point of the spring RVP transition. While domestic demand for gasoline is average-at-best, export demand for gasoline remains strong at north of 1 million barrels/day which is helping keep inventories in check and preventing margin erosion for refiners. Roughly half of all US gasoline exports go to Mexico, who despite outlandish claims by its President is nowhere near reaching refined fuel sovereignty based on the actual data since its existing refineries are operating at less than 50% of capacity (vs 90% for the US) and its new Dos Bocas refinery still isn’t producing fuel despite many claims to the contrary.

Diesel inventories increased for a 2nd week, with low PADD 1 stocks probably the only thing preventing a more dramatic drop in futures. PADD 3 diesel inventories are above average, PADD 4 is close to a record high and PADD 5 stocks are severely understated due to Renewable Diesel not showing up in the stats. PADD 2 inventories did pull back again from near record levels, but with BP whiting back up to full rates, that trend may soon reverse. Exports have not yet come to the rescue of sluggish domestic diesel demand, but that’s expected to change in coming weeks as international buyers have to replace barrels that Russia has lost to the drone attacks on its refineries.

Speaking of which, the expected shift of Russian exports from refined product to crude oil thanks to the successful drone campaign damaging facilities is already seeing logistical complications due to the change in tankers needed, and the sanctions on the fleet. While there’s no doubt the big trading houses will eventually find loopholes to work around this issue like they did in 2022, but those changes will take time.

PADD 2 refinery runs show the impact of the BP restart, with throughput rates going from below average to above the 5-year range in just one week. PADD 3 run rates dipped after 4 straight weeks of gains as another rash of unplanned upsets kept the Gulf Coast total throughput in check.

Natural Gas to gasoline is alive. Next Wave Energy announced the start of commercial operations of its Houston facility that’s been in the works for more than 5 years. The plant turns natural gas liquids into 96 octane alkylate that can then be further blended into the gasoline pool, particularly the premium grades. Next up the company is looking at options to make renewable diesel and SAF at the facility, but they may want to wait a couple years on that one given the current challenging economics of renewables.