The Big Story For Gasoline Cash Markets This Week Is Chicago RBOB Basis Values That Spiked More Than 60 Cents/Gallon

Energy futures are pulling back for a 3rd straight day after reports showed another build in gasoline and crude oil stocks, and the White House pulled another political stunt to try and lower prices in an election year.

The big story for gasoline futures this week was that the department of Energy announced it was shutting down the North East gasoline reserve Tuesday, pitching the plan as a way to keep gasoline prices lower for consumers during the driving season. The reserve was put in place following Superstorm Sandy in 2012 that had some stations in the region out of fuel and/or power for nearly a month. The timing and nature of the release, when prices have already showed signs of peaking for the season, and the US staring down what’s forecast to be the busiest hurricane season of the past 20 years, is questionable at best.

It appears that the DOE’s information arm didn’t get the memo on the release, as the EIA published a note this morning highlighting the threat posed to energy infrastructure by upcoming hurricane season.

If you’re interested in bidding, click here to register before the May 28 deadline, and make sure your vehicle is big enough to fit the 4-million-gallon minimum bid size. For perspective, the 900,000 barrels being offered in Pt Reading NJ (which is attached to the NYH market), represents about 3.5% of total PADD 1B gasoline inventories. It’s unclear if the bidding will be restricted to US companies but don’t be surprised at all if a portion of these barrels head overseas, or simply displace imports.

The big story for gasoline cash markets this week is Chicago RBOB basis values that spiked more than 60 cents/gallon, marking the largest single day increase for any market in the country so far this year. Rumors were swirling that Exxon was forced to buy barrels after a fire at its Joliet refinery over the weekend, after not making any moves Monday, while others noted flaring at the BP whiting refinery as the driver of the runup. If both rumors are true, and 2 of the 3 Chicago-area refineries are dealing with operational upsets at the same time, the region will become dependent on supplies from neighboring markets to make ends meet. PADD 2 refinery runs were holding near record highs before these events, and a rash of storms has kept demand across the region sluggish however, so there is plenty of spare capacity on pipelines that move products north, so it seems unlikely that Tuesday’s spike may be a classic Chicago-being-Chicago knee jerk reaction. So far the DOE hasn’t revised their gasoline reserve sale announcement to claim it was in response to these refinery issues.

Chicago diesel basis did rally a nickel Tuesday, and differentials are up more than 12 cents from a week ago, but those moves pale in comparison to gasoline at the moment, and are still holding the biggest discount to futures of any market in the country.

The API reported a build in gasoline inventories of 2 million barrels, and an increase in crude stocks of just under 2.5 million, while distillate stocks were down slightly about 320,000 barrels. The DOE’s weekly report is due out at its normal time this morning, and then will be delayed next week due to Memorial Day.

Who says it’s political? California’s LCFS values rallied off of 5 year lows this week after state officials announced they were delaying its announcement on how it will change the program that’s been too successful for its own good from March until a few days following the November Presidential election.

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