Mixed Thursday Start With Gasoline Futures On The Rise While ULSD Trading Lower

It’s another mixed start for energy markets Thursday with RBOB gasoline futures trying to lead a rally, up 2.5 cents at the moment, while ULSD futures are trading lower by a couple of cents.

Energy News Today reported that the P66 Bayway refinery – which is the largest plant on the East Coast, and the only remaining facility directly tied into the NYH hub – was forced to shut its sole FCC unit after a fire Wednesday afternoon. That upset is likely contributing to the relative strength in gasoline futures, particularly given the coinciding strength in gasoline time spreads, while ULSD prices continue to test the low end of their recent range.

Global equity indices reached record highs Wednesday led by more gains in the U.S. with traders cheering a modest inflation reading that is sparking hope that the FED will begin their expected rate cuts sooner than later. Once again, lower energy prices led by softer gasoline and diesel prices is acting as the key headwind to inflation in the U.S. according to yesterday’s CPI reading, with all other items sticking stubbornly at or above 3% annually, which on it own will not encourage the FED to cut rates.

Adding to the reality check, today’s PPI figures came in much hotter than expected at .9% for the month and 3.3% for the year, which has sparked a pullback in stocks although the data isn’t too surprising given that most producers don’t enjoy lower gasoline prices like consumers do. Equity and energy contracts haven’t been paying close attention to each other on a daily basis recently, but if there is a flight to safety in stocks, don’t be surprised if that spills over into refined product prices as well, particularly with ULSD on the cusp of a technical breakdown.

Most forecast models keep Hurricane Erin offshore as it heads north next week, but a few more of the potential tracks scrape the Carolina coast line in today’s model runs than we saw yesterday so there still could be some impacts to the U.S. coast. The potential for rough seas could delay marine vessel movement along the coast, and cause some localized tightness at waterborne terminals, but that shouldn’t last long.

Meanwhile, the potential storm system brewing in the Bay of Campeche has shifted a bit north and east in the latest forecast runs, and now may come ashore near the southern tip of Texas in the coming days. While the system still appears to be far enough west to avoid the refinery clusters on the Gulf Coast, it’s worth a note that heavy rains from Tropical Storm Barry’s remnants that formed in the same area ended up causing much of the devastating flooding in the TX hill country in early July and we’re seeing other non-hurricane disruptions in other parts of the state this week.

Enterprise reported a crude oil leak near Houston Wednesday that had lasted at least 24 hours. The leak apparently came from the Seaway pipeline that is one of the largest in the world at 950mb/day, running between the Cushing OK hub to south Texas, feeding several of the country’s largest refineries. Local flooding was blamed for the leak, but the market reaction was relatively muted as traders believe the line would be restarted overnight.

Refining in the Rockies is typically seen as little more than a rounding error given that the region’s capacity is less than 7% of the Gulf Coast. That capacity has been a bit of a puzzler in recent weeks however as a mystery drop of 70mb/day of capacity suggested that a regional facility had closed without making any news. The EIA confirmed this week however that the 71mb/day capacity drop was a mistake by one of the refiners reporting to the agency weekly and returned the capacity to more recent levels after spending 3 weeks at a 23 year low. No word yet if the head of the EIA will be dismissed for the faulty reporting.

Other notes from the DOE’s weekly report:

Crude built on imports surging to a 2025 high, but the increase was held in check by a pop in demand. Refinery runs picked up in PADD’s 1 & 2 but fell slightly in 3-5 for a small overall increase. All PADD’s are running at above average rates with PADD 2 hitting an annual high last week, leaving the total US rate about 3mm barrels over the high end of its 5-year range.

However, as noted above, ENT is reporting P66 Bayway had another upset yesterday, this time with their 145 kbd catcracker which is about 60% of the facility’s production. P66 expects the New Jersey refinery to be offline at least a few days, so the 5-year seasonal high run rate in PADD 1 seen this week could come off depending on how long the outage lasts. Earlier this week, the EIA confirmed a misreported number was the culprit of PADD 4 capacity hitting its lowest since 2002. The reading was returned to where it was prior to the blip this week, slightly reeling in the total utilization rate.

Diesel inventory changes were tame aside from the 1mm barrel build in PADD 3 propping up the overall increase. Stock levels continue to hold below the previous two years along the lower band of the seasonal range. Gasoline stocks had similar limited overall movement but in the opposite direction. Despite a surge in the smaller sub PADD 1A last week, PADD 1 drew and has been sinking below average over the past four weeks while PADD 2 bounced off an annual low and closer to beginning of summer levels. PADD’s 3-5 were mixed but all above average, particularly in PADD 5 where stocks remain at seasonal 5-year highs, leaving total U.S. gas inventories just above their 5-year average.