Momentum Is Waning In Refined Product Markets
Momentum is waning in refined product markets this week after prices stalled out early Monday and are slipping modestly lower again this morning. While the pullback of 5-6 cents from the 7 year highs set early Monday morning are noteworthy, we’ll need to see prices drop another 7-8 cents in the coming days before they threaten the bullish trend lines that have been in place since the August pullback. In other words, so far this week’s selling looks more like a correction to an overbought market, rather than a reversal of that upward trend.
While refined products are struggling, both WTI and Brent are moving higher this morning, putting downward pressure on crack spreads. Unfortunately for refiners, there’s a double whammy on their margins this week as RIN values reached their highest settlement in nearly 6 weeks yesterday, even though RIN values and crack spreads often move in the same direction.
Keep an eye on calendar spreads this week, as severe backwardation in futures that’s steadily grown over the past month’s rally seems to be having strong influence on regional cash markets and inventory levels. What we’re seeing today in the RBOB market, with November prices down a penny more than February values, could be a sign of what’s to come once the supply squeeze has passed. For both ULSD and RBOB, we could see 5-10 cents price drops in front month values just to get the curve back to a more normal level.
This phenomenon is perhaps most glaring in the Group 3 diesel market, where basis values for ULSD dropped to 8 cents below futures, a level we’re used to seeing during the demand doldrums in winter, not during the peak of harvest season where we are today. The weakness in Midwestern diesel values seems to be trickling down to the gulf coast, as shippers will want to avoid moving barrels north to sell at a net loss, which should eventually correct the pricing mismatch.
An EIA report this morning highlights how improvements in drilling and well completion over the past decade allow for more oil to be produced in the Permian basin with lower costs. Meanwhile, the EIA’s monthly drilling rig report highlights that output per rig is forecast to drop slightly in the coming month as producers sacrifice efficiency during the restart race, but total output is expected to continue climbing along with the drilling rig count.
Click here to download a PDF of today's TACenergy Market Talk.
Latest Posts
Energy Prices Up Over 2% Across The Board This Morning
Prices Are Mixed This Morning As The Potential Halt In U.S. Interest Rate Hikes
Week 22 - US DOE Inventory Recap
The Slide Continues This Morning With Fuel Futures Down Another 2% And Oil Down 3%
Social Media
News & Views
View All
Energy Prices Up Over 2% Across The Board This Morning
Refined product futures traded in an 8-10 cent range yesterday with prompt heating oil settling up ~6 cents and RBOB ending up about flat. Oil prices clawed back some of the losses taken in the first two full trading days of the week, putting the price per barrel for US crude back over the $70 mark. Prices are up just over 2% across the board this morning, signifying confidence after the Senate passed the bipartisan debt ceiling bill last night.
The EIA reported crude oil inventories up 4.5 million barrels last week, aided by above-average imports, weakened demand, and a sizeable increase to their adjustment factor. The Strategic Petroleum Reserve continues to release weekly through June and the 355 million barrels remaining in the SPR is now at a low not seen since September 1983. Exports increased again on the week and continue to run well above last year’s record-setting levels through the front half of the year. Refinery runs and utilization rates have increased to their highest points this year, both sitting just above year-ago rates.
Diesel stocks continue to hover around the low end of the 5-year range set in 2022, reporting a build of about half of what yesterday’s API data showed. Most PADDs saw modest increases last week but all are sitting far below average levels. Distillate imports show 3 weeks of growth trending along the seasonal average line, while 3.7 million barrels leaving the US last week made it the largest increase in exports for the year. Gasoline inventories reported a small decline on the week, also being affected by the largest jump in exports this year, leaving it under the 5-year range for the 11th consecutive week. Demand for both products dwindled last week; however, gas is still comfortably above average despite the drop.
The sentiment surrounding OPEC+’s upcoming meeting is they’re not likely to extend oil supply cuts, despite prices falling early in the week. OPEC+ is responsible for a significant portion of global crude oil production and its policy decisions can have a major impact on prices. Some members of OPEC+ have voluntarily cut production since April due to a waning economic outlook, but the group is not expected to take further action next week.
Click here to download a PDF of today's TACenergy Market Talk
Prices Are Mixed This Morning As The Potential Halt In U.S. Interest Rate Hikes
Bearish headlines pushed refined products and crude futures down again yesterday. Prompt RBOB closed the month at $2.5599 and HO at $2.2596 with WTI dropping another $1.37 to $68.09 and Brent losing 88 cents. Prices are mixed this morning as the potential halt in U.S. interest rate hikes and the House passing of the US debt ceiling bill balanced the impact of rising inventories and mixed demand signals from China.
The American Petroleum Institute reported crude builds of 5.2 million barrels countering expectations of a draw. Likewise, refined product inventories missed expectations and were also reported to be up last week with gasoline adding 1.891 million barrels and diesel stocks rising 1.849 million barrels. The market briefly attempted a push higher but ultimately settled with losses following the reported supply increases implying weaker than anticipated demand. The EIA will publish its report at 10am this morning.
LyondellBasell announced plans yesterday to delay closing of their Houston refinery, originally scheduled to shut operations by the end of this year, through Q1 2025. The company “remains committed to ceasing operation of its oil refining business” but the 289,000 b/d facility remaining online longer than expected will likely have market watchers adjusting this capacity back into their balance estimates.
Side note: there is still an ongoing war between Russia and Ukraine. Two oil refineries located east of Russia's major oil export terminals were targeted by drone attacks. The Afipsky refinery’s 37,000 b/d crude distillation unit was struck yesterday, igniting a massive fire that was later extinguished while the other facility avoided any damage. The attacks are part of a series of intensified drone strikes on Russian oil pipelines. Refineries in Russia have been frequently targeted by drones since the start of the military operation in Ukraine in February 2022.