ULSD Prices Hit 14 Month Lows, Rally Attempts Underway After Jobs Report

Market TalkFriday, Mar 10 2023
Pivotal Week For Price Action

Another wipeout Thursday pushed energy and equity markets sharply lower and set the stage for diesel prices to hit their lowest level since January 2022 overnight, only to see an impressive bounce in the past hour. Prices are attempting to rally in the aftermath of the February jobs report, even though a crisis at two West Coast banks is sending ripples of panic across the financial industry and adding to the already negative sentiment that’s gripped markets for much of the week. 

Energy futures didn’t react much initially to the February payroll report that showed another healthy month of growth with 311k jobs added, while the December and January estimates were revised lower. Both the headline and U-6 unemployment rates ticked up by .2% despite the job growth as the labor participation rate increased, AKA more people started looking for jobs that weren’t counted in the labor force previously, which could be taken as a bullish signal for both stocks and energy futures and may explain why prices started rallying about 10 minutes after the report was released.

The adage that there’s no such thing as a triple bottom held true for ULSD as prices touched $2.66 for a 4th time in a month Thursday before breaking down to new 13-month lows at $2.6294 overnight. The fact that prices did manage to rally a dime after setting that new low may encourage some bottom fishing and we’re certainly due for a corrective bounce after the 25 cent drop this week. While the rally has picked up steam heading into the 8 o’clock hour, there’s still more work to do to break the downward trend that’s taken hold this week with a rally above 2.80 needed for ULSD to look less vulnerable. If prices fail to settle back above the $2.66 range, the charts are giving strong favor to a quick move to $2.50 or below before the end of the month.

French strikes continue to disrupt refinery output for a 4th day. This news has been largely shrugged off in the so much other negative sentiment this week but could still be a factor in a price rally if it continues next week.

Near term demand doesn’t look like it’s quite ready to ramp up as spring is taking its sweet time arriving across much of the country, while another round of winter storms prepare to batter both the East and West coasts.

Unintended consequences: Why big oil may end up receiving many of the tax credits offered in the climate law branded as an inflation reduction act.

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Market Talk Update 03.10.2023

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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Pivotal Week For Price Action
Market TalkWednesday, Jul 17 2024

Week 28 - US DOE Inventory Recap