ULSD Futures Set New Record: 12-Day Rally

ULSD futures are rallying for a record-setting 12th consecutive session and have now added 50 cents/gallon during that span and are up more than 70 cents in the past month. While a correction is becoming inevitable given this unusual win streak, particularly given that the global supply network is in a much better place than it was when the war broke out, the question in the short term is who is daring enough to jump in front of the runaway diesel train?  

The API reported a huge decline of 15 million barrels of crude oil inventory last week, while refined products saw modest declines of 1.7 million barrels of gasoline and 500,000 barrels for diesel. Despite headlines saying the opposite, the market reaction overnight certainly isn’t reflecting that big slide in oil stocks as the gains in both WTI and Brent are lagging far behind products again. The DOE’s weekly status report is due out at its normal time this morning, and the crude oil adjustment factor - that has accounted for volume changes of 15 million barrels in a week several times this year – may be key to reconciling the government’s report to the API.

What a difference 4 weeks makes: On July 7th, the DOE announced a purchase of 6 million barrels for the SPR in a press released it labeled a “Good deal for American Taxpayers”.  Yesterday the DOE appeared to cancel those plans with minimal fanfare after the July rally made that good deal turn into something else.

Perhaps the most notable thing to come out of a refinery earnings call so far this week was news that Marathon may be forced to keep a reformer unit at its Texas City (aka Galveston Bay) refinery offline for the entire 3rd quarter due to lingering issues from a deadly fire in May. Marathon was also reported to be forced to shut units at its El Paso refinery this week, giving suppliers in the region concern after the severe shortages caused by that facility and the HFS plant in New Mexico going offline at the same time.

We’re 5 weeks from the peak of hurricane season and there’s not much storm activity to be concerned about. The chances of 2 converging systems off the East Coast this week have dissipated with just a single system given only 10% odds of developing being tracked at the moment by the NHC.

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