Losing Momentum Tuesday Energy Markets Attempt To Rally

Energy markets are ticking quietly higher Wednesday after a big reversal lower on Tuesday took the wind out of the weeklong rally for WTI and ULSD. Inventory draws are getting credit for the modest buying so far with other financial markets relatively quiet overnight and little in the way of market moving headlines so far.

September RBOB and ULSD expire on Friday, and we’re already seeing less liquidity in those contracts as most spot markets have rolled to trade against the October contracts. That change creates noise for gasoline differentials as we shift from comparing physical prices against a summer-grade contract (Sep) to a winter grade contract (Oct) that’s 17 cents cheaper, even though the physical markets won’t transition for another couple of weeks.

The API reported inventory draws across the board last week with gasoline stocks down the most with a 2 million barrel draw, diesel next with a draw of just under 1.5 million barrels, while crude stocks dipped by just under 1 million barrels. The DOE’s weekly report is due out

Developers in LA are pitching ideas on how to transform 400 acres of prime real estate currently occupied by the P66 Wilmington refinery. Take a look at what the site could eventually become, in about 20 years, IF they can run the gauntlet of remediation and legal challenges sure to follow any projects at the site. Meanwhile, later this morning the California Energy Commission is hosting a Public hearing to certify its PIIRA “Emergency” regulations that have required refiners and other industry participants to report all trading details to the state, in addition to refining margins, imports, terminal positions and a 3 month projections of their transactions. This “emergency rule” was past shortly before both P66 and Valero announced they would be shuttering refineries in the state. The CEC is also set to vote on its now-embarrassing proposal to cap refinery profits on Friday.

It was 70 years ago today that the Standard Oil refinery in Whiting Indiana exploded, killing 2 workers and destroying multiple homes in the area. That explosion happened during restart of a gasoline unit. Today BP is continuing its restart efforts at that same refinery after flooding rains shut the facility last week. RBOB differentials in Chicago are holding north of a 33 cent premium to October RBOB futures, and roughly half of that premium can be explained by the change in specs with physical summer grade barrels pricing against a winter-grade futures contract, while the other half is caused by the sudden loss of supply from that refinery. As long as restart efforts continue as planned those differentials should fade as we approach the RVP transition, but that note from 70 years ago is a harsh reminder that restart is the most dangerous time at these facilities at least in the U.S.

In Russia, the most dangerous time for refiners is right now as Ukrainian drone attacks are estimated to have shut down 17% of the country’s refining capacity, or more than 1.1 million barrels/day of output. Those losses are creating fuel shortages domestically, although it’s worth noting that so far the shortages appear focused on gasoline rather than diesel suggesting it has more impact on civilians than military capacity.