Refined Products Stage A 3-Cent Bounce To Wipe Out The Early Losses

Market TalkTue, Dec 05, 2023
Refined Products Stage A 3-Cent Bounce To Wipe Out The Early Losses

Energy futures were moving modestly lower to start Tuesday’s trading, hovering near multi-month lows in what appears to be a period of consolidation following the OPEC announcement. Weekly charts continue to suggest we could see another big push lower if lows set over the past couple of weeks get taken out, but so far, the attempts at that support have been met with brisk buying suggesting the bulls aren’t throwing in the towel just yet. Right on cue, after touching the lows for the day a little after 7am, we saw refined products stage a 3-cent bounce to wipe out the early losses.

The forward curve charts below show how the market has transitioned from backwardation to contango for both WTI and RBOB over the past month as supplies seem to be healing, and we approach the winter demand doldrums. The forward curve for refinery margins hasn’t changed much during this time, although it still appears that diesel margins will need to carry the weight of weak gasoline margins for the next year. The big negative basis values for diesel in the Gulf Coast, Group 3, and Chicago markets are sure to have some refiners concerned about their future prospects as those negative values are taking $8-$10/barrel off of their margin.

The divergence between big negative basis values on the Gulf Coast and positive values in New York are keeping values for both gasoline and diesel space along Colonial holding in double digit territory. Last year we saw the big premiums to ship products hold through most of December before crashing back into negative territory in January. 

Marathon’s Los Angeles refinery reported two different unplanned flaring events to California regulators in the past 24 hours. The first came early Monday afternoon with a 2nd following overnight. LA basis values had been softening of late, but already it appears gasoline values may be ticking higher following this news.

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Refined Products Stage A 3-Cent Bounce To Wipe Out The Early Losses