The Group 3 Diesel Market Set A Record Last Week With Prompt Barrels Trading At A $1.15 Per Gallon

It’s a quiet start for energy futures to begin the week as the world nervously watches events in the Middle East while big news is breaking elsewhere in the world.    

The Group 3 diesel market set a record last week with prompt barrels trading at a $1.15/gallon premium to futures as peak harvest demand coincided with multiple refinery upsets stretching from North Dakota to Oklahoma.  Meanwhile, the neighboring Chicago ULSD market continues to languish in excess supply, trading at a 25 cent discount to November futures as local refiners struggle to find a home for their production even before BP’s pipeline spill in Michigan last week took one pipeline option off the table for the region’s largest refinery.

Money managers showed a mixed reaction in the first full week of position data we’ve seen since the war broke out in Israel and Gaza. The large speculators reversed the liquidation trend in Brent crude and ULSD contracts as you might expect given the fear of supply disruption that’s been so well noted the past couple of weeks, but they also reduced their positions in WTI, RBOB and Gasoil, suggesting the big money bettors aren’t totally convinced of an all-out price rally. 

The net length held by speculators in RBOB reached its lowest level since the COVID lockdowns 3.5 years ago that saw refined products going for less than $1 while WTI traded negative. There’s a trading adage that suggests anytime the big speculators get a large position in either direction the market is about to change, and right on cue, RBOB gasoline futures rallied for 6 consecutive trading sessions following last week’s data compilation.

Contagious mergers? Less than 2 weeks after Exxon announced it was buying Pioneer for around $60 billion, Chevron announced it will buy Hess for $53 billion. Maybe next Exxon and Chevron could merge and call themselves Standard Oil.

Baker Hughes reported a net increase of 1 oil rig and 1 natural gas rig in the US last week, marking the first time we’ve seen 2 straight weeks of increases all year. While the net gain is minimal, this may signal that the rig count may have found its floor thanks to the recovery in prices and recent spending spree by the majors. 

More Gulf Coast refinery hiccups were reported late last week although unlike what we’re seeing in the Midwest, the impacts of these events seem to be minimal. P66 reported an FCC unit tripped offline at its Sweeny Facility Thursday.  Valero reported a coker was temporarily disrupted at its Port Arthur facility and the Alon (Delek) refinery in Big Spring Texas sprung a small leak in an FCC unit Friday.  

Citgo’s auction process will finally start this week after years of delays with a marketing campaign to sell the Venezuelan owned refiner and retail chain in what’s expected to be the largest court auction ever. 

Hurricane Tammy is turning North East away from the US this morning, but the latest models suggest the storm may turn South and West over the weekend and come back towards Florida next week. The good news is that the storm system will be moving north through cooler water this week which will reduce its strength and limit the threat it has to the US coast.

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