Energy Markets Start September Trading With A Big Selloff In Gasoline Prices

The driving season has ended as energy markets start September trading with a big selloff in gasoline prices. Gulf Coast spot markets are teetering on the edge of sub $2/gallon with today’s move lower in futures, and charts suggest there may be more downside ahead if support around current levels fails to hold.

LA gasoline basis values spiked Friday after Valero reported an upset at its Wilmington refinery Thursday night. San Francisco basis values had already been elevated for more than a week following an upset at Valero’s Benicia facility and the move higher in LA values Friday kept the sellers at bay. Neither market is yet threatening the big premiums we saw the past couple of years during this window of time when most of the country is transitioning to winter-grades, but California is still requiring 6lb RVP, and local officials will no doubt credit their flurry of new regulations as long as values don’t continue to rally in the coming weeks.

Group 3 ULSD basis values moved into positive territory for the first time all year last week as the annual confluence of harvest demand and fall refinery maintenance gives the region its occasional feeling of what it’s like to not be oversupplied. Gulf Coast diesel values had a strong showing in the back half of August, rallying steadily from an 11 cent discount to a 4 cent discount to futures, which means it’s still only marginally profitable to ship barrels north to the Midwest, despite the unusual move into positive territory for G3 values.

Money managers made small bullish moves across the energy complex last week, with the big 5 petroleum contracts all seeing net length added by the large speculative class of trader. Brent crude saw the largest increase with more than 18,000 contracts of net length added, primarily due to new long positions, along with some modest short covering. It’s also worth mentioning that although large speculators have been net short on diesel prices for more than 2 months, the “other reportable” category of trader representing small speculators is holding as much length as they ever have, following the lead of Swap Dealers that have seen steady increases int long positions added over the past year.

The NHC is tracking 3 different potential storm systems as we enter the 3 busiest weeks for hurricane activity. Right now, odds are low that any of these systems will pose a threat to US energy infrastructure, as none of the systems are given more than 40% odds of development, and their locations make a US Gulf Coast strike less likely.

In non-tropical weather news, large parts of the Texas Gulf Coast are facing flooding threats as heavy rains batter the region from the storm system that moved inland from the Gulf of Mexico over the weekend. So far there’s been just 1 refinery upset reported in the area, although it’s unclear if the flooding rains played a role when Valero reported an upset in a crude distillation unit at the Port Arthur refinery Sunday.

In the TX Panhandle P66 is reporting multiple upsets at its Borger refinery that have been ongoing for more than a day, impacting both FCC units at the facility and a sulfur recovery unit. After being unusually well-supplied for most of this year, the region has seen some product tightness in recent weeks as Valero’s McKee refinery undergoes planned maintenance, so any downtime at Borger is likely to be more of an issue on terminal supplies from Amarillo to Albuquerque.

Baker Hughes reported no net change in the oil rig count last week, with the total US value holding at 483 for a 3rd week, while natural gas rigs declined by 2, to a fresh 3 year low of just 95 active rigs.