Diesel Prices Fell Out Of Bed This Morning While The Rest Of The Energy Complex Continues To Move Higher

Diesel prices fell out of bed this morning while the rest of the energy complex continues to move higher.  The drop comes despite the fact that US diesel inventories reached a 14 year low last week, and east coast inventories are approaching their lowest levels on record. 

PADD 1 (East Coast) diesel stocks reached a 26 year low last week, and dropped below 25 million barrels for just the 2nd time in the 32+ years that the DOE has published this data. Even more influential for futures prices, PADD 1B, which included the central-Atlantic states that host the NY Harbor trading hub, and helps explain why we’ve seen such dramatic moves in the time spreads for ULSD. 

None of that helps explain why ULSD futures dumped overnight while the rest of the complex stayed in positive territory, but this could just be some profit taking after the May HO contract came within ½ cent of reaching the $4 mark overnight.  Watch the $3.85 level for May ULSD today.  If prices can hold above there, the 14 cent pullback looks like nothing more than consolidation that will eventually give way to another run higher.  If it breaks however, we should see a move towards $3.75 in the next couple of days (or hours given the volatility we know is possible).

East Coast gasoline stocks are also far below normal levels for this time of year, manifested through numerous terminal outages stretching from Florida to New England in the past several weeks, but are not nearly as dramatic on a historical basis as diesel inventories. 

US Crude production saw its 3rd increase in the past 4 weeks as the ramp up in drilling activity is finally starting to show up in the output figures.  Reports suggest that there’s a record amount of permitting going on in the Permian with prices north of $100, and the DOE still predicts the US will reach record output in the coming year, so expect this growth to continue, but probably at a rate that’s much slower than many who want lower prices would like given the lead time needed to bring those wells online.   

US refiners continue to increase run rates despite a handful of unplanned maintenance events in the past week, and many of those that are running hard are enjoying their best margins in a decade or more, particularly if they have access to the global waterborne markets.  Some inland markets are seeing some heavy discounting at the rack level however as local refineries are incented to run as hard as possible, even if it means taking a loss on some of the products that aren’t in high demand right now.

Short term chart note:  Watch the $3.85 level for May ULSD today.  If prices can hold above there, the 14 cent pullback looks like nothing more than consolidation that will eventually give way to another run higher.  If it breaks however, we should see a move towards $3.75 in the next couple of days (or hours given the volatility we know is possible).

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