Energy Prices Were Seeing Another Healthy Selloff Overnight

9:30 am update

Gasoline prices have jumped since the weekly DOE report, and our emails seem to be back up finally, both of which are exciting.

Import/export flows are factoring heavily into the weekly stats with Gasoline exports accounting for half of the inventory draw down, while a decline in distillate and crude oil exports on the week explains why those products gained.    Refinery runs increased in every PADD, with PADD 1 rates jumping 10% on the week, no doubt due to PBF restarting the crude unit at their NJ facility that had been shuttered due to weak economics last year.  

From the 8am market update:

Energy prices were seeing another healthy selloff overnight, after a big Tuesday rally, but have since cut those losses following the latest reading on inflation in the US.

Gasoline and crude prices both turned positive, Diesel nearly wiped out 10 cent losses and stock markets rallied sharply this morning after the July CPI reading came in unchanged for the month, a sign that US inflation has peaked, and that the FED can take it easy on free money crowd.   The drop in gasoline and other fuel prices was the main driver of cooling inflation in July, while prices for food and shelter both continued to increase. 

Another large part of the yo-yo action in prices the past couple of days is being blamed on flows of Russian oil to several land-locked European nations.   Tuesday, Russia’s pipeline company Transneft announced that flows on that pipeline were being cut since sanctions prevented payment for that fuel, and that coincided with the strong price rally.  This morning, Hungary announced it was paying fees to allow shipments to resume temporarily, and prices are moving lower once again. 

Another factor stirring up the action in Diesel prices this week:  Low water levels on the Rhine river are disrupting one of Europe’s most crucial arteries for transporting energy supplies, right when the continent can least afford another supply snag.

Speaking of which, NY Harbor gasoline prices continue to trade 40 cents or more above their Gulf Coast counterparts, with a steeply backwardated curve hanging on for another week.   This unusual phenomenon was highlighted in the DOE/EIA’s Short Term Energy Outlook this week, noting how refinery shutdowns along the East Coast of Canada and the US and reduced imports from Europe due to their energy crisis are both contributing to this phenomenon.

The monthly STEO also highlighted the tight global market for distillates, with the major supply centers in the US, Europe and Asia all holding 30-40% less inventory than their 5 year averages.  The report does predict that rising output in the US should help inventories to heal modestly in the coming month, but highlights the threat that the looming hurricane season pose to those estimates.

Speaking of which, the area of storms moving across the Atlantic currently known as Invest 97L was downgraded overnight and now has only a 30% chance of getting a real name this week.  If that system is named, long range projections peg it moving towards the East Coast, rather than into the Gulf of Mexico, which is good news for oil producers and refiners, but bad news for the beleaguered region that’s been struggling to get fuel supplies caught up ever since the start of the war in Ukraine.  

The API reported builds in crude oil and distillate inventories last week of 2.1 and 1.4 million barrels respectively, while gasoline stocks drew by 600,000 barrels.  The DOE/EIA’s version of the weekly status report is due out at its normal time this morning.

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