Energy Markets Rally: Bulls Charge Ahead Amidst Ceasefire Rejection and Strong US Earnings

Energy markets are rallying for a 4th straight day, with refined products once again leading the charge after some bullish inventory data Wednesday. Adding to the bullish fervor this week are reports that a Gaza cease fire plan has been rejected, and strong earnings from US businesses have the S&P 500 within a few ticks of reaching the 5,000 mark.

RBOB futures came within 3 points of reaching a 3-month high overnight, and charts continue to favor a strong move higher as we move towards spring. The DOE’s weekly report added a fundamental argument for the spring rally, with lower refinery runs and a big increase in estimated gasoline demand last week. The official diesel demand estimate remains at the low end of the seasonal range as it has been for most of the past 2 years, but when you factor in the missing consumption that’s going to Renewable Diesel, the true value looks much closer to the 5-year seasonal average.

Gulf Coast refinery runs dropped for a 3rd straight week and were down more than 1.5 million barrels/day over that stretch. We should see run rates start to increase next week as multiple large refineries are starting to return from their maintenance activity this week, most notably Motiva’s Port Arthur facility that’s had its largest crude unit down on planned turnaround for a month. 

Mid Continent refiners are seeing the opposite pattern, as run rates surged back above their 5-year range last week as facilities seem eager to maximize output before their Canadian crude discount shrinks later in the year. PADD 2 run rates are expected to drop sharply in next week’s report following the unplanned downtime at BP Whiting, the largest refinery in the region, with this week’s restart efforts appearing to be mediocre at best, driving a healthy rally in basis values.

The difference in refinery runs between the Midwest and Gulf Coast regions remains painfully obvious in the inventory charts, with PADD 2 stocks holding at the top end of their seasonal range, while PADD 3 stocks have plunged to the low end of theirs. The challenge with this of course is that PADD 2 facilities are largely land-locked and can’t rely on exports to ease their glut and may instead end up relying on refinery run cuts, planned or otherwise to balance the equation.

US Crude oil producers only needed two weeks to recover from the January freeze, with total output returning to an all-time high (for any country in the world) of 13.3 million barrels last week. The EIA still appears to be figuring out its accounting system however, as the Crude Adjustment factor dropped to a negative 1.6 million barrels last week, suggesting 11 million barrels of oil just vanished from their figures. If you’re hoping for lower prices, you may note that despite 11 million barrels of oil going missing last week, the official estimate of inventory still increased.

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