Refined Product Inventories Are Down Across The Board This Week
Refined product futures settled up modestly after yesterday’s news with prompt month RBOB contracts adding 1.5 cents and HO almost flat at +.0032 cents. WTI and Brent lost $1.15 and $1.03, respectively. The small gains in gas and diesel prices were erased overnight with June RBOB down 2.8 cents and HO down around a penny. WTI and Brent are trending further down this morning, both showing 45 cent losses. The early morning movements indicate recession fears are still intact as the Group of Seven kicks off their meeting in Japan today with a question mark surrounding whether or not the US government will raise its debt ceiling.
Yesterday the EIA reported crude up almost 3 million barrels on the week as the congressionally mandated sales from the Strategic Petroleum Reserve continue. The 362 million barrels remaining in the SPR is the lowest level since October 1983 and the 26 million barrels in sales are expected to continue through the end of June this year. Crude exports fell back to the seasonal 5-year average last week, but barrels exiting the US are still outpacing last year's record setting average.
Refined product inventories are down across the board this week with each PADD reporting declines in both gas and diesel. Diesel stocks are at the low end of the 5-year range, sitting just above year ago levels when the major supply concerns began. Part of the drop can be explained by 1.8 million barrels in diesel exports and healthy bumps in demand for both products as we head into the driving season.
Refinery runs were tame in total last week adding just 10,000 b/d as increases in PADDs 4 and 5 were largely offset by a decline in the Gulf Coast. Run rates remain above average despite a still week, sitting just above year ago levels. PADD 3’s utilization rate has been steadily increasing since mid-March and has reached its highest level since last December, but as we learned last week, that number is likely to remain artificially inflated for a year since the EIA won’t be including the additional 250,000 b/d capacity out of Exxon’s Beaumont facility in their annual Refinery Capacity Report until June 2024.
The spread between Phoenix diesel rack prices and LA spot shot up from around +10 cents late February to $1.42 peak by the end of April. Current values show Phoenix rack prices still going for $1.19 over LA as diesel shortages in the Southwestern US continue to impact the Arizona market. While these spreads are still high, once rack prices start to lower against spots, the gap tends to close rapidly.
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View AllValues For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
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After Another Black Friday Selloff Pushed Energy Futures Sharply Lower In Last Week’s Holiday-Shortened Trading
After another Black Friday selloff pushed energy futures sharply lower in last week’s Holiday-shortened trading, we’re seeing a modest bounce this morning. Since spot markets weren’t assessed Thursday or Friday, the net change for prices since Wednesday’s settlement is still down more than 6-cents for gasoline and almost 5-cents for diesel at the moment.
OPEC members are rumored to be nearing a compromise agreement that would allow African producers a higher output quota. Disagreement over that plan was blamed on the cartel delaying its meeting by 4-days last week which contributed to the heavy selling. The bigger problem may come from Russia, who announced plans last week to increase its oil output once its voluntary cut agreement ends now that price cap mechanisms are proving to be ineffective.
While an uneasy truce in Gaza held over the weekend, tensions on the Red Sea continued to escalate with the US Navy intervening to stop another hijacking and being rewarded for its efforts by having missiles fired at one of its ships.
RIN values came under heavy selling pressure Wednesday afternoon following a court overturning the EPA’s ruling to deny small refinery hardship waivers to the RFS. Those exemptions were a big reason we saw RINs drop sharply under the previous administration, and RINs were already on due to the rapid influx of RD supply this year.
More bad news for the food to fuel lobby: the White House is reportedly stalling plans to allow E15 blending year-round after conflicting studies about ethanol’s ability to actually lower carbon emissions, and fuel prices. Spot prices for ethanol in Chicago reached a 2.5 year low just ahead of the holiday.
Baker Hughes reported the US oil rig count held steady at 500 active rigs last week, while natural gas rigs increased by 3.
The first of perhaps several refining casualties caused by the rapid increase in new capacity over the past two years was reported last week. Scotland’s only refinery, which has a capacity of 150mb/day is preparing to shutter in 2025.
The CFTC’s commitment of traders report was delayed due to the holiday and will be released this afternoon.
Click here to download a PDF of today's TACenergy Market Talk.