The Rally In Energy Prices Ran Out Of Steam Wednesday

The rally in energy prices ran out of steam Wednesday, with most contracts limping across the finish line after touching multi-month highs in the morning, and have started out Thursday’s session with modest losses. Weekly charts continue to favor higher prices for both gasoline and crude oil contracts with just a couple of weeks remaining until we reach the typical peaking window for the spring gasoline rally, while diesel prices still look like the weakest link despite rallying by 20 cents in just 3 days.

OPEC’s monitoring committee met Wednesday and did not recommend any changes to its output cut plans (as was expected) but did note that Iraq and Kazakhstan had agreed to compensate for previous overproduction, and Russia was agreeing to base its cuts on actual production instead of based on exports. Whether or not that has anything to do with Kazakh production being hampered by the Caspian Sea oil spill, or Russia’s production being hampered by a lack of domestic refinery demand and limited capacity to export more crude is a matter for speculation at this point.

Gasoline inventories continue their typical seasonal slide in most regions, with an exaggerated decline in PADD 5 helping to spur the rally in LA and San Francisco basis values which saw another big increase Wednesday. PADD 3 is the exception to the rule with Gulf Coast gasoline increasing counter-seasonally for a 2nd week, which is helping to drive up values for space on Colonial’s main gasoline line which continue to rally this week. The Coast Guard already has 2 temporary shipping channels open in Baltimore, so it seems the strength in linespace values is more of a push from Gulf Coast refiners who need to find a home for their excess rather than a pull from further up the line.

Diesel exports saw a large increase last week, reaching a 6-month high in what may be an early sign of buyers needing to find replacements for the cheap Russian barrels they’d been exploiting for the past couple of years. A Reuters article this morning highlights how sanctions are complicating the repair efforts on Russian refineries – even before the drone attacks began – and may contribute to a tick up in US export volumes this year.

The EIA highlighted its new Renewable Diesel shipment data this morning, which shows the rapid increase of shipments to the West Coast as more production from Gulf Coast refineries ramped up over the past couple of years. The agency still does not include renewable diesel inventories in its weekly petroleum status report however, so PADD 5 diesel inventories show up as a very low 12 million barrels, when in reality they’re closer to 17 million barrels, which is well above normal levels.

The lack of RD in the weekly stats also means that the total US Demand estimate for diesel is understated by somewhere around 5%, which is good news for suppliers stressing out over the very weak figures that have held below the 5-year seasonal range for most of the year so far. Still no word on when the EIA will update the weekly survey to show the product that now makes up a majority of the diesel used on the west coast, but if the ethanol example from 15 years ago is an indicator, it may be a year or more before those figures are included.

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