Gasoline Prices Are Approaching Their Lowest Levels Of The Year In Some US Cash Markets This Morning

Gasoline prices are approaching their lowest levels of the year in some US cash markets this morning as strong refinery runs and soft demand both weigh heavily on futures and basis values. 

Diesel futures had been trying to pull gasoline and crude prices higher earlier in the week but now seems to have given up that relative strength, setting up a key technical test around the $3.50 mark. If that support breaks, there’s a strong argument that we could see the September lows at $3.10, but if it holds, we’ll just be waiting on the next major cold snap to rally back north of $4. 

Basis values for diesel in NYH have dropped more than 90 cents/ gallon in the past week, but remain the strongest in the country. Gulf Coast diesel basis has crumbled to a 30 cent discount to futures as PADD 3 inventories are actually above average despite the fact that so many other markets are very tight on diesel as refiners are having a hard time finding enough transportation options to move their excess product. 

After another refinery-hiccup-induced rally last week, West Coast gasoline basis values have crumbled. PADD 5 gasoline inventories have healed rapidly after hitting a multi-year low 5 weeks ago, and now join PADD 3 (Gulf Coast) inventories in holding at above-average levels, which helps explain why we’re seeing Gulf Coast gasoline values drop to their lowest level since January today. 

Refinery runs in all 5 PADDs are holding above their 5-year average levels, even though refining capacity in each PADD has decreased, as plants push as hard as possible to supply a tight global market, aka capture margins that continue to hold near record levels. See charts from the DOE’s weekly report below.

Speaking of refinery runs, converting old oil refineries to renewable diesel production has been a major theme over the past few years, but a struggling project in California is a harsh reminder that these projects are both complex and costly. California’s LCFS values dropped again this week, and are now worth less than 1/3 of what they were two years ago, which severely limits the profitability of these facilities as well. 

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.