RBOB Gasoline Futures Try To Lead Petroleum Complex
RBOB gasoline futures are trying to lead the rest of the petroleum complex on another rally this week, moving higher for a 6th straight sessions, and coming within $.0025/gallon of reaching a new 7 year high overnight. Diesel and crude oil contracts are reluctant to follow so far, and remain a few percentage points below the multi-year highs they set earlier in the month. Which contract wins the tug of war this week may well determine if the 8 month old rally can continue, or if we’ll see a more substantial pull back in prices this fall.
The Dallas Fed’s manufacturing survey for July showed another month of above average production for the state, while also highlighting the ongoing inflationary pressures many companies are facing. The report also offered a glimpse into the challenging labor market that is being felt across industries, and the country.
American Airlines is the latest in the long list of companies impacted by the driver shortage this summer, and has encouraged pilots to conserve fuel as a result. Make no mistake, it’s not a shortage of fuel - refiners would love to make more Jet – as that product does not create a Renewable Volume Obligation like gasoline and ULSD do, and is one of the last outlets for higher sulfur blends, it’s a lack of capacity to get that fuel where it needs to go.
While there may be plenty of fuel nationwide, regional shortages are becoming more common, with the San Francisco bay area becoming the latest to see prices spike as inventories dwindle. SF diesel basis values spiked another 7 cents in Monday’s trading, adding 16 cents to those differentials in the past 2 weeks. With two of the areas 5 refineries already shutting their doors to convert to renewable diesel production, and 2 more being told last week they’ll need to spend hundreds of millions of dollars to install equipment to reduce pollution, it seems like resupply will have to come from overseas.
LA Spot values have also risen due to a pair of refinery issues in July, but are so far lagging the move this week. In normal years, we’d expect a fleet of trucks to long haul fuel to alleviate the regional shortages across the Western half of the country, but, well, you know the story.
Today’s interesting read: The wave of deal making changing the landscape of US oil drillers.
Click here to download a PDF of today's TACenergy Market Talk.
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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.