ULSD Prices Are Currently Trading Above Their Downward Sloping Trend-Line

Fuel prices are heading higher for a 2nd day, with both RBOB and ULSD futures pushing nickel gains in the early going despite more signs of swelling inventories.  

ULSD prices are currently trading above their downward sloping trend-line, and the charts suggest we’ll see a run north of $2.80 in the near future if these gains can hang on today.   RBOB prices remain less bullish technically, and face more seasonal headwinds than diesel, but still look like they have a good shot of making a run at the 200-day moving average just north of $2.20 in the next week. 

Houthi rebels launched their largest attacks yet in the Red Sea Tuesday night, which was successfully repelled by US and British naval forces and no damage was reported by ships moving through the region. The attack comes just hours before the UN takes a vote on a resolution to condemn the attacks, and seems to make it more likely that the Houthis are about to get a lesson in US special operations capabilities. 

The third major winter storm in a week is set to sweep across the country over the next few days, following a similar West to East path as the one we just saw. What may be more concerning for some is that some extremely cold air is coming in the wake of this storm, pushing large parts of the country below zero for 2 or more days to start next week, while north Texas is predicted to drop into single digits. Refinery row across the Gulf Coast is expected to see temperatures drop below freezing Monday and Tuesday, which certainly could create some operational upsets, but unlike Winter Storm Uri in 2021, temperatures will get above freezing during the day, and the cold snap is only set to last about 48 hours, so it seems unlikely we’ll see anything close to the chaos of a few years ago. ERCOT is already issuing warnings in preparation for this latest cold snap, but says the grid is prepared to handle the spike in demand. 

The API reported more large refined product builds last week with gasoline stocks up nearly 5 million barrels, while distillates increased by 6.9 million barrels. Obviously given the overnight rally in prices, the market seems to be shrugging off those builds, which may be because the API’s figures had to go higher to keep pace with the 10+ million barrel builds reported by the DOE last week, so the APIs figures weren’t unexpected.   The DOE’s weekly report is due out at its regular time this morning, the first time in 3 weeks it will be on schedule due to the holidays. Next week’s report will be delayed again for the MLK Jr. Day holiday, which will also shut spot markets (and many industry offices as a result) even though futures will still trade in an abbreviated session.

The Monday holiday will also coincide with what’s expected to be the worst of the cold weather, so we won’t get cues on the severity of the event from spot market trading.  Perhaps the most vulnerable part of the country to a cold snap is the Northeastern US due to a lack of natural gas transportation infrastructure forcing many to still rely on diesel fuel as a primary or backup heat source, while diesel stocks in the region remain very low by historical standards. The good news there is so far the forecast lows for the major metro areas from New York to Boston are only in the teens, and daytime highs will hover around freezing, so this is not (yet) looking anything like the major Polar Vortex event from a decade ago.

This week’s interesting read: Chevron’s response to California’s proposed rule that would penalize refiners for making too much money. For the counter-argument, read about California’s X1-2 bill here. Meanwhile, California officials announced this week that refiners, traders, brokers and anyone else participating in the states spot markets now need to report their trades twice, once when the deal is done and again once the final prices are set, since earlier mandates to report all trades couldn’t handle the realities of floating price mechanisms commonly used.

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