Refined Products Set Fresh Multi-Month Highs In Another Strong Session For The Bulls Thursday

Refined products set fresh multi-month highs in another strong session for the bulls Thursday and have resumed that push higher this morning after a brief pullback overnight. 

August RBOB futures reached $2.9679 this morning, the highest level since October of last year. It seems like we’ll see at least an attempt to try and push those values to $3 ahead of the contract expiration on Monday, before the roll to the September contract knocks about 7 cents off of the prompt values.  The strength in futures and time spreads this week has come in spite of weakness in NYH basis differentials and Colonial linespace values as PADD 1 refinery runs quickly recovered after the extended downtime at the Bayway refinery.  

ULSD futures are trading at their highest level since Valentine’s Day touching $2.9338 in the early going, which opens up a similar window for a push towards $3 just like RBOB. Unlike RBOB however, physical buyers seem to be jumping on the diesel bandwagon with stronger basis values seen across most of the country, and less backwardation in the forward curve means prompts values will drop just a penny or two after Monday’s expiration.

While refined products are celebrating a summer renaissance, ethanol values are heading the opposite direction, dropping by 25 cents this week on the back of weaker corn prices. The diverging price patterns has pushed the premium for gasoline vs ethanol (net of RIN values) north of $2/gallon. 

We are still about 6 weeks away from the peak of hurricane season, but the NHC is tracking 3 different potential storm systems this morning, 2 of which could be threats for the east coast. The good news is 2 of the 3 systems are given low odds of development and are already close to shore giving them little chance to develop into something meaningful. The third system is given 60% odds of being named next week and is far enough north and east that it may stay offshore, but there is a possibility of some disruption along the Eastern Seaboard as it moves north.

There’s a common theme among the refiner Q2 earnings releases this week: The 2nd quarter of 2023 was nowhere near as strong as the record smashing margin environment they enjoyed a year ago, but margins are still pretty good given low inventory levels and recovering demand. The reports are also confirming what many on the West Coast already knew, that renewable diesel production has surged in the past 6 months and created a rapidly changing environment for the diesel marketplace as both the new renewable barrels and the old traditional diesel barrels all look for new homes.

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