Gasoline Futures Fell To Their Lowest Levels Since February Overnight

Gasoline futures fell to their lowest levels since February overnight, and are once again testing technical support layers that threaten a larger move lower if they break down this week. Diesel and oil prices are also moving lower for a 2nd day, but so far remain safely above the technical trap doors that could lead to sharply lower prices.

A big move lower in equity markets suggests that part of the selling in products may be a “risk off” trade taking hold, even though the correlations between equity and energy markets have been nearly non-existent over the past month, and currency influences are opposite of the normal strong dollar/weak commodity behavior.

The forward curve charts below show how the market has softened over the past month, as concerns of potential supply shortages turned to concerns about supply excess. The most notably change on the curve is in the ULSD contract which continues to slip further into contango, marking the weakest spread in nearly 3 years as a glut of diesel extends across most of the country.

The API reported a large decline in oil inventories of 6.5 million barrels, a small draw in gasoline stocks of around ½ million barrels, while diesel inventories rose by 2 million barrels. The DOE’s weekly report is due out at 10am central today.

There have not been reports of refinery upsets caused by the rash of severe weather that swept the country over the past week, although Chevron did report an upset at its Galena Park (E. Houston) terminal caused by a gasoline leak from a faulty vapor recovery system. At this point, it seems like the week of storms has been more a hindrance to demand as it disrupted holiday travelers and kept farmers that are already delayed in planting activity from returning to their fields.

A Reuters article this morning highlights the challenges ethanol producers have trying to qualify for the $1.25/gallon SAF production credit, in yet another harsh reminder that turning corn into fuel can be more damaging to the environment than the traditional fuels themselves.

Click here to download a PDF of today's TACenergy Market Talk.