Bleeding Has Stopped For Energy Prices
The bleeding has stopped for energy prices, temporarily at least, after another DOE-inspired tidal wave of selling knocked prices to fresh multi-month lows Wednesday. If the tentative early gains can hold, it would snap a 6-day losing streak for gasoline futures that have wiped out more than 25 cents/gallon. (As I was about to hit send, the 2 cent gains from 30 minutes ago have turned into losses, which suggests it’s too soon to declare an end to the meltdown.)
Stock markets seem to be happy that negotiations are underway between US & Mexican representatives in an effort to avoid another tariff battle. Although energy and equity prices have detached from one another recently, those discussions could have direct impacts on US refiners who are weighing in to try and avoid paying more for imported crude, and for exported products should a retaliatory tax battle break out.
US Oil production reached a new all-time high at 12.4 million barrels/day last week, that’s 1.5 million barrels/day more than 1 year ago, and more than 3 million barrels/day more than 2 years ago.
Diesel demand remains dismal with last week’s estimate from the DOE marking the lowest level for May in the past 7 years.
Gasoline stocks continued to build, led by the largest weekly increase in PADD 5 (West Coast) inventories in more than 20 years. The past 3 weeks have seen PADD 5 gas stocks move from below their 5 year seasonal range to the top end of it as record imports flooded the market to take advantage of the high prices created in the wake of numerous unplanned refinery issues. Based on the industry’s uncanny knack for over-healing its wounds, it would not be surprising to continue to see builds in the coming weeks even though supplies are now ample.
You know a market is bearish when…one of the country’s largest refineries reports operational issues due to storms and prices barely flinch.
The heavy rains sweeping across the country continues to threaten many states already fighting flood waters. Reports Wednesday indicated that Exxon was facing multiple unit shutdowns at its Baytown TX plant, one of the country’s largest refineries. Gulf coast gasoline and basis values moved modestly higher on the day, and it did not seem to move the needle in futures markets, but it’s another reminder that we’re starting off the hurricane season with refineries in an unusually vulnerable spot due to the spring rains.
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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
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.
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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.