Gasoline Prices Are Trading Near A 5-Month Low This Morning

Diesel prices are leading the energy complex lower this morning with 7 cent losses for the prompt November contract in the early going, reaching a 1 month low. Gasoline prices are trading near a 5-month low this morning as the seasonal demand decline coincides with a rough stretch of weather on the East Coast that’s putting a heavy damper on driving.   Time spreads are also coming under pressure as record warm temperatures have fears of potential refinery-maintenance induced shortages are put on ice for now. 

WTI has also dipped to its lowest levels in 3 weeks which may signal that the hedge funds who had been adding to their bets on higher prices may be heading for the exits now that the complex has lost its upward momentum. Inventories at the Cushing OK trading hub remain extremely low as suppliers shift their focus to the export market and may continue driving more demand to the new WTI contracts that settle in Texas instead of Oklahoma.

The RIN reset continues with D4 values approaching a 3 year low below $1/RIN this week, following a study that shows nearly 50% of California’s diesel demand is now being covered by RD and Bio supplies.   That study also suggests it’s possible, and perhaps even probable that RD primarily will effectively replace traditional diesel in the state over the next decade thanks to numerous blending credits and the lack of a blend-wall for RD. Of course, one problem with that projection is that producers are making $1/gallon less now than they were just a few months ago due to the drop in RIN prices, and if that trend continues, we could see some of the many new production projects in the works put on hold or scrapped completely.

Meanwhile, California’s order to waive summer-grade RVP requirements early – in an effort to combat its other policies that helped drive yet another inventory squeeze at the end of the season – has pushed basis values for prompt CARBOB supplies down more than $1/gallon over the past 3 days. 

One of the biggest unknowns in the refining business these days is if/when the new 650mb/day Dangote refinery will open in Nigeria, which could have a major impact on Atlantic basin refining economics and crude oil supplies. Meanwhile, while that project drags on years after its original planned start up, the country continues to struggle to supply refined products to its citizens, with tragic consequences.

Texas is bidding to add winter electricity capacity to avoid a repeat of the tragic cold snap in February 2021, which also caused the largest combined refinery disruption in history. We are seeing yet another reminder of how dependent the refining industry is on that same electric grid as an unexpected power loss tripped a Corpus Christi facility offline late last week, which is causing product allocation restrictions in the San Antonio area this week. 

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