Markets Chop Back And Forth
The struggle for directions continues this week as conflicting economic and inventory data has energy and equity markets chopping back and forth. RBOB gasoline futures are trading higher for a fifth day, testing resistance around the $1.22 mark for the eight time in 10 sessions, and if they can finally manage to sustain a break above that ceiling have a clear path to $1.40 on the charts. Oil and ULSD contracts have a more neutral technical outlook and are going nowhere so far today.
The EIA’s weekly oil output estimate dropped by 600mb/day last week. The large drop in oil output coincides with a drop in the unaccounted for crude calculation, which seems to confirm the suspicion of the past two months that the official estimates were overstating actual production by nearly one million barrels/day. There is still more than 600mb/day of oil unaccounted for in the petroleum balance sheet, which may mean real production has dropped below 10 million barrels/day in the U.S., from a high of 13.1 million barrels/day just three months ago.
Diesel inventories saw a small decline, the first time distillate stocks have dropped in 11 weeks. Diesel demand estimates had a second weekly gain after reaching their lowest level in more than a decade, and are now “only” about ½ million barrels/day (roughly 12 percent) below the seasonal average for this time of year. Refiners continue to demonstrate their relative flexibility in dealing with this supply glut, dropping diesel output to a two year low, even as total refinery runs increased on the week, reversing the pattern we saw on the front end of the COVID-19 shutdown.
Gasoline inventories also had a small draw-down – which helped prices recover from the selling sparked from the API’s estimated four million barrel build. Unfortunately for refiners, gasoline demand was estimated to have declined on the week, snapping a three week streak of increases, and giving a reminder of how challenging this recovery is to predict. The weekly consumption for gasoline is now roughly 15 percent below its seasonal five year average, and roughly 20 percent below year-ago levels. A bright spot for domestic refiners in this report was that gasoline exports had a strong increase, which should be good news for the coastal facilities that have come to rely on international buyers to clear their plants.
The Dallas Fed this week highlighted new studies that suggest consumers are much more sensitive to gasoline prices than previously thought, which contradicts decades of economic research on the topic. The end result is that the new findings suggest drivers are more likely to reduce miles driven when prices rise, and if prices stay high over a longer term they will switch to more fuel efficient options.
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Gasoline Futures Are Leading The Way Lower This Morning
It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.
Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.
A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.
Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.
Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.
Click here to download a PDF of today's TACenergy Market Talk.
The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days
The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.
The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.
An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.
Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.
In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.
The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.
Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.
Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.
PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.
Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.