Refined Products Have Erased The Big Losses To Start The Week As The Recovery Rally Extends For A 2nd Day

Refined products have erased the big losses to start the week as the recovery rally extends for a 2nd day. Both RBOB and ULSD futures are up more than a dime from Tuesday’s lows, while WTI has rallied $3.5 in an effort to snap its 7-week losing streak.  

Don’t call it a comeback:  Gulf Coast diesel prices rallied sharply Wednesday after reaching their lowest levels in 2 years on Tuesday. Basis differentials have climbed 20 cents over the past two sessions after trading at a 44-cent discount to futures on Monday, and that rally has popped the bubble in values for space on Colonial’s line 2.   

Markets around the world are rallying after the FED signaled it was prepared to begin lowering rates next year in its latest FOMC announcement. The CME’s Fedwatch tool shows a 90% probability of the first-rate cut coming by March, vs 35% odds on that happening 1 month ago.  US stock markets are poised to reach a 7th straight week of gains and the DJIA surged to a record high following that announcement.    

As has been the case for the past several months, the IEA’s monthly oil market report has sounded the most bearish compared to OPEC and the EIA’s monthly forecasts, and has been the case for several months, the market seems to be shrugging off this latest projection.  The report cited a sharp slowdown in European demand, and strong supply growth from the US, Iran, Brazil and Guyana as reasons for the pessimistic outlook, and predicted that 2024 will be a year in which producers are forced to protect their market share.

US refiners pumped the brakes last week after 4 weeks of increased output after returning from a busy fall maintenance season. With no major disruptions reported outside of a couple hiccups in Southern California last week, it's likely we’re seeing the early stages of refiners rationalizing their production given the sharp pullback in margins and the distressed basis levels we’ve seen lately. For many facilities, this is the first time in 3 years they’ve had to consider curtailing run rates to avoid losing money.

Refined product inventories increased last week, despite the slight slowdown in output and a 2nd week of increased demand following the Thanksgiving slump. Reported diesel stocks remain tight on the coasts and ample in the middle of the country, consistent with the big inconsistencies in basis values between markets. PADD 5 stocks continue to look worse than they are however as the influx of Renewable Diesel doesn’t yet show up in the DOE’s weekly report. 

Can’t catch a break: Marathon reported another fire at its Galveston Bay refinery, which is the 4th largest in the country, and perhaps the most troubled facility in the country ever since the PES Philadelphia refinery blew up and went away in 2019. This latest fire adds to the 39 upset reports the facility has made to the TCEQ in the past year, although company officials said output would not be affected. 

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