Diesel Has Held Above Its 5-Year Seasonal Average For A 2nd Straight Week

After a wild Wednesday session that saw heavy morning losses turn into afternoon gains, energy contracts are selling off again to start Thursday’s session. 

The war in the Middle East continues to contribute to some whipsaw action in prices with energy futures selling off sharply at one point Wednesday after reports that Israel was postponing its ground invasion of Gaza, only to quickly rally once the trading algorithms got past the headlines to see that the delays were only to allow US military forces more time to prepare for expected confrontations with neighboring countries.

When supply fears aren’t driving the action, demand fears seem to be taking hold as signs of weakness from the US and Europe continue to keep traders and refiners on edge about what’s ahead this winter. 

Want to know why Colonial line 1 values have spiked north of 7 cents/gallon this week? Take a look at PADD 3 gasoline inventories and you’ll get a feel for the struggle Gulf Coast refiners seem to be having finding a home for their barrels. More concerning for those producers is we are just starting the seasonal demand slowdown, and refinery runs are currently reduced, so things could get worse in the coming months. The EIA’s gasoline demand estimate remained below the 5-year average for a 7th straight week.

Diesel demand meanwhile held above its 5-year seasonal average for a 2nd straight week, keeping inventory levels in most regions near the bottom of their seasonal range. The exception is in PADD 5 where inventories have surged in the past 2 weeks to the top end of their seasonal range in another example of the cure for high prices being high prices, as 60 cent basis premiums attracted barrels from far and wide leading to the inevitable collapse in values over the past two weeks.

It looks like the US is dodging yet another hurricane bullet this week as Tammy turns back out to sea without threatening land. Mexico is not as fortunate as Acapulco saw a tropical storm turn into a category 5 hurricane in less than a day before making a direct hit on the city. That record-setting intensification is exactly what many were afraid would happen in the Gulf of Mexico this year given the record warm water, but now we’re just a few weeks away from getting to put those concerns on the back burner until next summer. 

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