Diesel Prices Continue To Try And Lead The Energy Complex Higher This Week

Diesel prices continue to try and lead the energy complex higher this week, as the world continues to have few answers to a shortage of natural gas and distillates, while gasoline and crude oil prices are resisting that pull and moving modestly lower. 

Equity markets are pointing to large gains to start the day, setting new highs for the recovery rally since bottoming out last Thursday, but still not breaking the longer term downward trend. The correlation between daily swings in US stock indices and energy contracts has fallen apart in the past couple of weeks, so the rally seems to be having little if any impact on fuel prices so far. 

Basis markets around the country remain chaotic as traders deal with supply that swings between famine and feast on a weekly basis, and big swings in calendar spreads on futures that raise the level of difficulty substantially.  California continues to be the diva of the cash markets, with LA CARBOB now trading negative, marking a $2.50 drop so far in October. No word yet if regulators will investigate the cause of this price drop. West Coast diesel values meanwhile continue to trade at big negative values ahead of the roll to November physical trading which moves prices to the December futures contract reference point which is nearly 42 cents cheaper.  

NY Harbor ULSD continues to disconnect from the rest of the country, with prompt values going for nearly 80 cents more than the neighboring USGC and Chicago markets and more than $1/gallon above those on the West Coast. Delta’s refinery in Monroe PA is reportedly restarting after planned maintenance which should help alleviate the latest short squeeze on East Coast distillates, and those high prices are certainly opening arbitrage windows from several markets around the world, so we will see another price collapse at some point, but it’s hard to say when, or how long this latest dip will last.

New reports are out this morning that the White House will announce more releases from the SPR, with an estimate of 10-15 million barrels, which won’t last long at the current pace of around 1 million barrels/day. That release, if true, would be less than 8 percent of the total already announced for the year, although with nearly half of the reserve already depleted, the strength of this lever to [NOT win elections] combat price increases is decreasing. The same reports also suggest that a decision on limiting fuel exports will wait until after the elections. It’s worth noting the White House already ruled out a ban on natural gas exports, due to its numerous pledges to come to Europe’s aid, so it’s hard to see a ban on distillates, although restrictions on certain types of fuel (like gasoline) or limiting the destination countries could still be in play to try and show they’re trying to combat high gasoline prices without limiting refiners ability to run full out. 

Meanwhile, the simplest solution to some of the domestic supply bottlenecks, a widespread waiver on the Jones Act, remains a political non-starter although a waiver for LNG shipments to Puerto Rico was just approved to aid in Hurricane recovery efforts.    

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