Overnight Selling Has Refined Products Hovering At Near Break Even Levels

Refined products are hovering near break even levels this AM after surviving another wave of selling overnight briefly extended Wednesday’s losses by another 3 cents.

Marathon reported unplanned flaring at the Wilmington section of its LA-area refining complex last night. That facility is California’s remaining refiner, so it has the potential to move basis values if that event leads to unit shutdowns but could be nothing as the cause and duration of the upset are still unknown. Basis values in LA have plummeted this week as previous upsets at the Chevron and PBF plants in the LA area seem to have been resolved and gasoline imports reached a 3 month high.

Meanwhile, it appears that California’s last-ditch efforts to keep Valero from closing its Benicia (SF Bay area) refinery have failed, with the city manager reporting that there appears to be no path forward to keep the plant operating. The trickle down effects of that shutdown extend upstream as well as down, with the state’s largest oil pipeline likely to shut down in the wake of the Benecia closure as that line is already losing $2 million/month even with that facility still demanding its capacity.

Ukrainian strikes on Russian oil refineries continue with 2 more facilities hit overnight. It’s hard enough to keep track of refinery upsets in the US even when that data is widely published, and it’s essentially impossible to calculate the output at Russian refineries but estimates that somewhere between 1.1 and 1.4 million barrels/day of refined product output is currently offline from the strikes seems realistic. Those amounts would equate to 20-25% of total Russian capacity and approaching 1.5% of global refining output.

The FOMC cut its target interest rate by 25 points as expected Wednesday and set the stage for another 50 points in reductions by year end in their projections and commentary. The CME’s Fedwatch tool now shows a 90% probability of another 25 point cut at the October 29th FOMC meeting, and 82% odds of a 3rd cut at the December 10th meeting. The consensus for now seems to be that rates will stabilize around the 325 point range in 2026 (75 points from today’s level and 100 points below where we were before yesterday’s cut) but it’s widely debated when that 4th cut of 25 points will happen next year with roughly 75% odds given that it will happen by the end of April.

Tropical storm Gabrielle is expected to become a hurricane early next week, but forecast models show it hooking out to sea and not threatening the U.S.. The 2nd system being tracked by the NHC is still given only 20% odds of being named in the next week.

Notes from the DOE’s weekly status report:

Crude drew a little over 9mm barrels with exports almost doubling week over week. Exports surged to a new annual and seasonal high while imports decreased but with a little help from the increased adjustment to crude, the reported balance was held somewhat in check. Refinery runs were down everywhere but PADD 4, indicating fall maintenance is starting to show up in the numbers. Despite the drops across most regions, utilization remains high and run rates are still wedged between 2023 and 2024 levels at the top of the 5-year range.

Diesel stocks increased for the fourth straight week with exports showing the opposite effect it had on crude. Exports had the largest week to week drop of the year to fall to the lowest level of the year and accounted for the bulk of the 4mm barrel build. Increases in PADDs 1 & 3 boosted total US inventories up to year ago levels, particularly with PADD 3 breaking above its 5-year average for the first time since the 2nd week of the year.

Gasoline inventories dropped ~2mm barrels with a falloff in imports but more so a result of increased demand following the holiday dip. Opposite of the above again, PADDs 1 & 3 were the reason for the decrease. PADD 1 dropped a little over 1mm barrels, all of which is attributed to the slide in PADD 1A, the New England area as shippers raced to dump their remaining summer grade product that was still trading 20 cents higher than winter grades last week. PADDs 1 & 3 are both hovering around the low end of their seasonal ranges, leaving total US gas stocks about 3mm barrels below the 5-year average.