Another Rally Attempt Thursday After Wednesday Gains Fizzled

Energy markets are attempting another rally Thursday after some strong gains Wednesday morning fizzled following the DOE’s weekly status report. The latest push higher comes after reports that Russia had launched an ICBM at Ukraine for the first time, in what would be seen as a thinly veiled threat to the US and European allies given the range of those weapons. The overnight gains have been tempered however as the claims are already being disputed by US officials.

Gasoline inventories remain near the low end of their seasonal range despite a big drop in estimated demand and exports last week as imports dropped and refiners pumped the brakes after several weeks of above average production. Diesel demand also saw a sharp drop in the latest report, keeping days of supply above average levels, even before accounting for the Renewable Diesel inventories that are not yet included in the weekly figures.

Tighter gasoline supplies along the East Coast are showing up in stronger time spreads on futures, and stronger basis differentials in NYH, which is also encouraging stronger bids for space on Colonial’s main gasoline line.

Los Angeles basis values have been rallying this week following reports from ENT that Marathon, P66 and Chevron were all facing unplanned issues at their refineries in the area. The strength in the LA market comes in strong contrast to weakness in the neighboring San Francisco spot market that has seen prices drop sharply following the latest major storm to hit the region which officially kicked off the start of the seasonal volume decline in that region.

The EIA published a note on declining gasoline demand in China caused by a declining population, slowing economic growth and EV sales that are far outpacing the trends seen in the US and elsewhere. If those trends continue, they will continue acting as a headwind to global oil and gasoline prices, just as they’ve done for much of this year. Those trends also help explain why no one wants to buy 3 of China’s oil refineries out of bankruptcy.

The DOE announced yesterday that it was awarding up to $2.2 billion to 2 more hydrogen projects, one along the Gulf Coast, and one in the Midwest with Chevron, Exxon and BP each listed as potential participants in the projects, proving once again how big oil companies are poised to capitalize on green incentives, and why repealing those programs under a new administration won’t be as simple as some are predicting.