Dip In Equity Markets Influencing Selling Of Refined Energy Products

Energy markets are limping into another weekend with modest selling to start Friday’s session as refined products continue to take cues from U.S. equity markets which are pointing lower again this morning.

Despite the early selling, ULSD futures are on pace for their first weekly increase of the past 5, earning back around 8 cents of the 35 cents they lost over the previous month.

If WTI can hold above $67.18 today it will mark the 2nd straight week of gains after 7 consecutive weekly losses. The net gain so far in the past 2 weeks is less than $1/barrel however, so it’s not exactly a resounding victory for the bulls.

RBOB futures have been holding above the 200 day moving average on the continuous chart for most of the week which sets up a test of the March high just below $2.25if they can continue to stay north of that support layer. If the March high is broken, there’s another 25 cents of upside potential on the charts, while a failure continues to suggest we could see sub $2 gasoline later this summer.

A new round of sanctions to try and squeeze Iran and block a Chinese refinery loophole got credit for some of the market’s strength the past couple of days, although with the swirling headlines of tariffs, sanctions, war and peace it’s pretty easy to just pick one that fits whichever way the market happens to be moving that day.

OPEC announced a new plan Thursday for the countries that have overproduced their quotas (AKA cheated) to compensate via additional output reductions over the next 15 months. Iraq was the biggest offender who now promised to withhold an average of 120mb/day through June of next year, while Russia and Kazakhstan combined promised to withhold a similar amount. No word on what version of a “pinky swear” the cartel members used this time around to prevent them from continuing to cheat one another.

Numerous shippers along the Colonial pipeline have been protesting a new plan proposed in February that would change RVP requirements and eliminate fungible shipments of M and V grade products (87 and 93 octane conventional, non-ethanol) and replace them with segregated batches. The pipeline says these products have declined dramatically due to the renewable fuel standard and they complicate the logistics of moving gasoline products on the line. The protesters which now include just about every major oil company and shipper, suggest Colonial is trying to front run their customers by creating a monopoly on butane blending along their system rather than allowing that blending to be done at the origin points as has been done for decades. Colonial’s original filing and a sample of the protests are attached.

It’s clear that Colonial is expecting this issue to take a while to make it through the FERC protest process as they recently broke out their latest Product Loss Allowance price increase from the other parts of the tariff under protest so that their entire plan wouldn’t be delayed. One of Colonial’s arguments has been that the new policy will increase capacity on its main gasoline segment (Line 1) which is perpetually allocated, even though values to lease space on that line have been negative for most of the past year.

Click here for supplemental documents: