US Commercial Crude Inventories Reaching Their Lowest Levels In A Year

RBOB gasoline futures are once again leading the move, trading higher for a 7th consecutive session since reaching a 3.5 year low on September 10th. The 2nd consecutive settlement above the $2 mark and today’s rally suggest good odds we see RBOB values continue to rally towards the $2.20 chart gap near term, but longer term studies still suggest we could see new multi-year lows before year end.

ULSD futures are trading higher for a 4th straight day, but have only added 7 cents to their total during that stretch and have yet to break out of their latest bearish trend, and will need to push north of $2.20 to reduce the odds of a slide below the $2 mark in the months ahead.

Energy futures got a small boost from the DOE’s weekly report that showed US commercial crude inventories have reached their lowest levels in a year (which excludes the glacially slow pace of replenishing the SPR) while refined product inventories saw notably smaller builds than the API’s estimates.

Prices got another temporary boost following the FOMC’s announcement of a 50 point cut in their target interest rate, following in the wake of a brief spike in equity markets. That rally proved to be short-lived in both asset classes however as the FED’s projections suggested that we’ll “only” see a 100 point combined reduction this year which is on the lower end of expectations even though they opted for the larger cut in round 1.

California basis values continued their “return to earth” selloff this week, and even the holdout San Francisco diesel values moved lower Wednesday. Chevron’s El Segundo refinery reported unplanned flaring overnight, which may signal that the company is facing the common challenges with restarting units after maintenance. That refinery is also making industry news this week as El Segundo officials are trying to repeat the extortion agreement Chevron made in Richmond in which it will pay the city $550 million over 10 years to continue operating. No word yet from producers if these protection schemes will be prominently featured in The Godfather IV.

Total reported an upset at their Port Arthur refinery Wednesday, and Energy News Today subsequently reported an 80,000 barrel/day FCC unit was forced offline following that problem.

There are 3 potential storm systems in the Atlantic being tracked by the NHC this morning, but contrary to the early season forecasts that called for a record-setting storm season, none of these systems has a name, or even greater than 50% odds of developing in the next 7 days. The one that will need to be watched is a potential central American gyre system that has a chance of developing in the Gulf of Mexico next week. Right now the odds are set at 40% in 7 days, but longer range models suggest higher likelihood of development past 1 week from now. If this system does develop some long range models suggest it could become the next threat to refinery row, while others point it at Florida. Water temperatures remain near record highs throughout much of the Atlantic basin, so the potential for a major hurricane still exists even though we’ve passed the peak of the season with “only” 2 hurricanes hitting the US Gulf Coast so far.

The EIA this morning published a note detailing how it calculates its “Product Supplied” values, which are the implied demand estimates we see on a weekly and monthly basis. The key to understanding the DOE’s figures is that they stop at the “bulk” level where terminals, pipelines and refiners are required to report their inventory and production data every Friday. The agency also missed a chance to highlight how their weekly diesel figures do not include any Renewable or Bio diesel, even though those products now make up around 7% of the total demand in the country. Eventually, the agency will add lines in the weekly report just as they had to do for ethanol more than a decade ago.

More detail from the DOE’s weekly report, which saw only minor impacts from Hurricane Francine, are included in the notes and charts below.

Crude only posted a small decline on a surge in exports with a big positive swing in the adjustment factor. Refinery runs fell, mostly due to heavy declines in PADDs 3 & 4. PADD 4 dropped from the top end of the seasonal 5-year range to the bottom week to week. Crude stocks are now sitting just 387 thousand barrels above the 2019 low point of the 5-year range in the same week. Cushing stocks have fallen to the bottom of the 5-year range and below the previous two years lows. Demand saw a slight bump and imports were down sharply for both oil and refined products.

Gas and diesel stocks both had mixed movement for little change in total but large changes at the PADD level. Diesel in PADDs 1 & 2 had sizeable drops which were offset by large increases in PADDs 3 & 5. PADD 2 looks to be starting its seasonal trend of holding less diesel. PADD 5 had a similar but more exaggerated increase as the same week a year ago.

Lowered gas inventories across all other PADDs were covered by PADD 3’s big swing to above average levels from well below the week prior. PADD 1’s fall back to average, after exceeding that level two weeks ago for the first time since March, was attributed to a 21% decline in PADD 1A and a 2mm barrel drop in 1C, along with steadily declining imports. PADD 5 has fallen from a good run above its 5-year range to below average over the past couple weeks. Ethanol production and inventories remain comfortably above their 5-year ranges.