Diesel Futures Are Trying To Lead Another Move Higher To Start The Week With The October ULSD Contract Up A Nickel So Far

Diesel futures are trying to lead another move higher to start the week with the October ULSD contract up a nickel so far, reaching a new 8-month high at $3.3510. RBOB futures are ticking slightly higher on the day, but remain well below their Friday morning highs, while WTI is still trading modestly lower.

Hurricane Lee will be a big story all week as it slowly crawls towards the East Coast. Most models keep this storm off the coast as it moves north this week, although a landfall from New Jersey to Maine is still possible this coming weekend so it will remain front page news.  The odds of a strike on northeastern Maine look to have increased over the weekend, as have the chances that the Irving refinery in St. John NB will take a direct hit. If there’s a silver lining to the potential for that refinery to being hit by a major storm, it would be that the facility already had a turnaround planned starting this week, so the market isn’t planning on those barrels anyway. 

Money managers were piling into WTI contracts as prices hit their highest levels of the year last week, jumping on the bullish bandwagon with bets that the rally will continue and pushing net length to the highest since June 2022. The large speculators also added to their length in Brent crude, but reduced their length in products, with ULSD, RBOB and Gasoil contracts all seeing slight declines on the week. Swap dealers saw an active week with a healthy increase in net short positions in WTI, which suggests that some producers are jumping in to hedge future output at current values.

Baker Hughes reported an increase of 1 oil rig drilling in the US last week, the first weekly increase since June after reaching the lowest level since February 2022 the week prior.   Natural gas rigs declined by 1 on the week, setting a new 20 month low.

That didn’t last long: The Group 3 market’s turn in the spotlight with a trade north of $1/gallon over RBOB futures for prompt UNL lasted less than a day with values dropping sharply Friday to “only” about 40 cents over futures. West Coast markets meanwhile continue to carry hefty premiums as tight inventories remain a theme as we approach the last few weeks of summer-grade products for gasoline, and diesel stocks remain tight with resupply of RD looking scarce due to weather-related delays in the Panama Canal.

An explosion at the ADM Ethanol plant in Decatur Illinois sent several workers to the hospital overnight. That facility is listed as the largest ethanol production plant in the country at 375 million gallons/year (24mb/day) and accounts for more than 2% of total US ethanol production capacity according to the EIA’s energy atlas. It’s unclear at this point what if any impact there is on production, but reports suggest it’s the third fire in the past 6 months at the facility, and the others have not created a big stir in ethanol markets. 

Marathon’s Texas City (aka Galveston Bay) refinery had another fire last week, with reports suggesting this latest in an unfortunate string of upsets at the country’s 4th largest plant will keep an FCC unit offline for at least a week. The event was downplayed in a filing with the TCEQ Friday that only mentioned 2 hours of unplanned flaring. That story was given credit for some of the early buying in product futures Friday, but gasoline prices quickly gave back gains, suggesting the FCC downtime wasn’t seen as much of a factor longer term.

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