Refined Products Are Trading Higher For A 2nd Day, And Have Now Wiped Out The Heavy Losses We Saw Earlier In The Week

Refined products are trading higher for a 2nd day, and have now wiped out the heavy losses we saw earlier in the week, putting the bulls back in control after a short break. Yesterday’s DOE report was a good reminder that despite most US refineries running all out, inventories remain very tight in most markets and demand is still holding relatively steady despite record high prices. 

Adding to the bullish tone for refined products over the past 24 hours, reports that a Gulf Coast refinery heading for the scrap heap next year could close early if there are disruptions (like from the busy hurricane season that’s forecast) while a major East Coast supplier is apparently experiencing complications with its turnaround that started last month.

One bright spot for those looking for some easing of the supply problems: PADD 1 diesel supplies rose 20% off of record low levels in 1 week, helping to alleviate the extreme tightness we’ve seen across the East Coast.  Still, regional stocks are some 20 million barrels (roughly 40%) below average levels for this time of year. Then again, a fresh natural gas supply squeeze my interfere with the resupply of the East Coast just as it looked like we may get to catch our breath.

Some European natural gas prices are trading up by 30% or more this week after an explosion and fire at a major US LNG export facility. US prices are actually trading lower following that news, and may see more selling near term as barrels that would have otherwise gone overseas will now have to find a domestic home, while European markets simply won’t have a replacement for those barrels any time soon. The plant is expected to be closed for 3 weeks, which certainly won’t help ease the global shortage near term, but is not nearly as bad as it could be and the plant should be back online well before the European winter where the shortages will really become a challenge. As we’ve seen over the past year, the shortage of natural gas in Europe can create more diesel demand as a replacement option, which will mean more competition for cargoes heading to the East Coast of the US.

Today’s interesting read from Bloomberg: Why algorithms used by schools, police and HR departments need a babysitter. Something fuel traders that have watched the rise of algorithms trading in futures markets know all too well.

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