The Big Increase In Gasoline Stocks Pushes Total US Inventories Above The Seasonal 5-Year Range

The meltdown continues for oil and diesel prices this morning after Wednesday’s big sell-off that saw refined products drop by 15-17 cents/gallon, and oil have its biggest drop of the year over $5/barrel. 

At the time of this writing, ULSD prices are down close to 40 cents for the week, with 8 cent losses in the early going, after barely blinking at technical support near the $3 mark. Longer term charts suggest that if prices hold below $3, there’s a chance we go back to the $2.50 range, but we’re overdue for a bounce after this big move.  

Headlines continue to pin the blame for this week’s heavy selling on “demand fears” since there is little on the supply side of the equation to point to with Russia and Saudi Arabia confirming they will hold their output cuts through the end of the year despite the recent recovery in prices, while US inventories continue to hold at low levels. There certainly seems to be a risk-off feel to the selling as equity and bond markets have also seen investors heading for the exits this week, just as it appears some hedge funds are doing in energy contracts. 

The DOE’s weekly report showed the extent of a busy fall refinery maintenance schedule, which several predict will see the most capacity taken offline since 2019. That drop in run rates didn’t prevent a big increase in gasoline stocks however, as a dismal demand figure that had some people wondering if we’re once again in the early stages of a consumer pullback, and others questioning the DOE’s calculations.   

The big increase in gasoline stocks pushes total US inventories above the seasonal 5-year range for the first time since the war in Ukraine broke out 19 months ago.

While RBOB futures are hovering around breakeven so far today, this week’s plunge puts wholesale gasoline prices in a few spot markets at the lowest levels of the year so far, which is currently offering huge margins for retailers, and will soon be passed along to consumers at the pump as long as we don’t see a quick reversal. A WSJ article this morning suggests that declining margins on in-store sales and other inflationary items are pushing retailers to keep fuel margins higher than in previous years, while also noting the cost increase associated with the renewable fuel standard, but overlooking the LCFS and Cap & Trade costs on the West Coast.

How exciting(!):  The EIA invites you to join them for a watch party to see the release of their 2023-2024 Winter Fuels outlook on 10/16. Last year’s report was notable for predicting a colder winter and higher heating costs, and was completely wrong in essentially all regards. 

Meanwhile, Russia is ironically nervous about heating costs after using the energy weapon on Europe the past two years, issuing new price regulations to keep heating fuel prices in check and to head off any more uprisings.

Another possible item adding to the negative sentiment in refined products this week:  Reports that the Dangote refinery in Nigeria, pegged as a “game changer” if it actually works, has started crude runs for the first time after years of delays. 

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