Fears Of An Economic Slowdown Are Getting Much Of The Blame For The Big Sell-Off This Week
Refined products are trading lower for a 4th straight day after a heavy wave of selling Wednesday pushed gasoline futures to a 3-week low, while ULSD futures are within a penny of the lowest levels since January 2022. Fears of an economic slowdown are getting much of the blame for the big sell-off this week, with yesterday’s DOE report offering little to counter those concerns as domestic fuel consumption remains fairly soft.
While futures continue to act as though the sky is falling, physical markets across large parts of the US are telling a very different story. Space to ship gasoline on Colonial’s mainline surged to a nickel premium Wednesday as spreads between the NYH and Gulf Coast continue to widen following the transition to summer grade products in NY this week.
Markets across the US Southwest continue to see huge premiums for both gasoline and diesel and it seems like the only thing that will end that price spike is the return to service of 2 refineries in the region that are both down for extended maintenance.
Group 3 basis values jumped back up to a 20-cent premium over ULSD futures Wednesday, after pulling back sharply from abnormally strong levels earlier in the week. PADD 2 distillate stocks remains at the bottom of the 5-year seasonal range just in time for planting season and a couple of facilities still have maintenance work ongoing, which may keep prices elevated in the area for another few weeks.
The EIA’s estimate for gasoline demand saw a large decline last week, which added fuel to the gasoline fear fire that’s seen prices drop 30 cents in the past week. Refiners are also cranking up their run rates as a busy spring maintenance season starts to wind down, which is alleviating concerns about shortages in some areas, even as extreme shortages persist in others.
The EIA finally acknowledged that its weekly refining capacity figures are not including the new 250mb/day expansion of Exxon’s Beaumont facility, which is causing utilization figures to be inflated, until the capacity report is updated at the end of May.
While the White House is pressing the EPA to try and get phase 3 fuel economy standards pushed through the courts, Exxon and Chevron are offering an EV alternative with new production of renewable gasoline blends being road-tested by the majors. Both companies have also been working on technology to co-process renewable fuels at their traditional oil refineries, which would be incredibly more efficient than the shut-down conversions we’ve seen several other facilities try over the past few years.