Diesel Demand At 3 Year High Last Week

Energy prices are ticking modestly lower to start Thursday’s session as the lackluster sideways trading action continues. Charts continue to suggest we’re stuck in neutral territory for the next several weeks, with a move of 20 cents or more in either direction needed to break out of the winter trading range for refined products.

We did see a modest bounce in prices following yesterday’s DOE report, but that did little if anything to change the technical outlook. Meanwhile, the FOMC’s first policy (non) move of the year seemed to be largely ignored.

The DOE’s weekly estimate for diesel demand hit a 3 year high last week with the recent cold snap across the country driving up heating demand and forcing several utilities to burn diesel to supplement their normal fuel supplies. That jump in demand helped keep inventories along the 3 US coasts to stay near the bottom end of their seasonal range, while stocks in the middle of the country continue to hold near the top end of their range since there simply aren’t enough ways to move that product to the coastal markets. It’s worth pointing out that while the PADD 5 diesel stock chart may suggest a supply crunch, those figures still don’t include RD inventories which now make up more than 25% of the supply along the West Coast, which pushes total inventories to the top end of the seasonal range.

Gasoline stocks in most US markets continue along their typical seasonal pattern with stocks building as we approach the beginning of the spring RVP blend-down. PADD 5 gasoline inventories are the stand-out exception, holding below the bottom of their seasonal range, which is contributing to the rally in LA CARBOB basis values which hit a 3 month high on Wednesday. The spring RVP transition starts a month earlier in California than the rest of the country, which will keep upward pressure on spot basis values, while opening a window for blenders at the terminal level to make huge margins until the racks shift to requiring the lower RVP.

Marathon reported unplanned flaring at the Wilmington section of its LA-area refining complex overnight, which certainly has the potential to add to the upward momentum in basis values given that it’s the largest facility still operating on the West Coast.

One big question mark for PADD 2 refiners and shippers this year is the looming change in 8 midwestern states to remove the 1lb RVP waiver for 10% ethanol blends (since ethanol pollutes more in the summer time) while also allowing year-round blending of E15. If that rule isn’t wiped out by an Executive order in the next couple of months, we’ll see both 7.8lb and 9lb RVP conventional gasoline stocks in the region that typically only holds 9lb RVP.

That change to two blends in the summer time would create a demand for more tankage, and leads to a higher likelihood of regional shortages and higher prices. It’s also worth pointing out that while declaring an energy emergency in order to push through legislation may seem like suspect policy to some (particularly when US drillers are lowering rig counts) it has already been happening in the ethanol world for years, and certainly makes it possible that the newly confirmed EPA administrator could simply reinstate the waiver so 7.8lb RVP won’t be necessary in the new markets this summer.

A report by Bloomberg’s energy transition group showed investment in new sources of energy rose 11% to more than $2 Trillion in 2024, with China outpacing all other countries after 2 decades of being the global leader in oil demand growth. While that spending set a new record, it’s still less than half of what’s estimated to be required to reach the Paris-agreement goals. It’s also worth noting that spending on proven technologies such as renewables and EVs increased 15% globally last year, while investment in emerging technologies like carbon capture and hydrogen dropped by 23%.

The EIA this morning highlighted how US Nuclear Generators are completely reliant on imports of uranium in order to operate. While that doesn’t have any direct impact on refined products, it is a key detail that will give other countries leverage at the trade tariff negotiating table.