Reversal Thursday is in effect this morning as across-the-board selling (with little in the way of news to explain it) is wiping out most of the gains earned earlier in the week.
It’s hard to say what’s behind the selling so far. It could be a delayed reaction to the soft demand estimates given by the EPA yesterday, with both gasoline and diesel consumption reaching their lowest weekly levels since last winter. It could also be a reflection of the easing of the tensions in Iraq when the Kurds chose not to fight the government forces over Kirkuk. Or perhaps the speculative funds ran out of bullets to fire as they’ve already amassed historically large long positions in crude and refined products.
At this point, it doesn’t matter so much why we’re pulling back, as it does how long this selling can last. If the momentum continues through tomorrow, it will create some bearish patterns on the weekly charts that bring on more heavy selling to end the month. If the sellers run out of steam however, this may just be chalked up to yet another reversal Thursday session that was merely a short term correction of a longer term trend.
Refinery runs dipped sharply on the week as all 5 PADDs saw decreases, which seemed to catch the market a bit off-guard. What will be critical for next week’s report will be whether or not we see a recovery. If we do, it’s possible there were more plants in PADD 3 that slowed run rates ahead of Hurricane Nate than what was reported. If they don’t, it appears that some of the fall maintenance work that was pushed back after Harvey has been put back on the schedule.
Even though it feels like the tail wagging the dog, RIN values continue to be a frequent driver of the daily action in gasoline prices. Yesterday it was the latest rumor of the White House telling the EPA to squash the 2 proposals that would reduce the Renewable Fuel obligation action sending ethanol RINs back above the $.80 mark for the first time in 3 weeks and also helping to push gasoline prices back into positive territory on the day.
While the strong correlation between ethanol RINs and gasoline crack spreads in 2017 certainly helps neutralize the costs of the RFS to some degree, it may not be enough to save PES, which operates the largest refinery system on the East Coast, after another credit downgrade was announced yesterday.
Charts from the DOE weekly status report.