Energy Market Updates

Extreme volatility continues grip the futures markets as the USLD pit erased almost $.30 in the last two days.  Even though its up about $.05 currently, expect this sell off to continue for the short term. 

Future pricing action continues to be as wild as a Patriots game ending, with the average swing intraday running over $.12 from high to low.  Yesterday’s bump higher in diesel was somewhat expected on the heels of three strong down days and a fair amount of market moving news on tap. 

The Market giveth and the Market taketh. 

After falling over $.50 last week, front month ULSD has risen almost $.50 this week.  Gains were primarily on the heels of the Keystone pipeline leak that spewed 14,000 bbls (588,000g) of crude into Northeast Kansas late last week, prompting Operator TC Energy to shut down the entire pipeline.  Main note on why this is significant, is that this leg of the pipeline runs to Cushing, Oklahoma which is the primary metric for weekly Inventories.  As of this morning, product has since started to flow but still not through the damaged section which may take weeks to repair. 

A few weeks ago we hoped to see ULSD trading $.50 lower, as the cash market was tumbling at warp speed.  And would you look at that, here we are! Much of those losses have come from the last 5 sessions alone. (see chart below). 

Hope’s not a four letter word, although, probably not the best strategy in the fuel business. 

I’ve been away…..any talk about diesel supply? 

News cycles have jumped all over the fear topic of only 25 days of supply of distillates in the Northeast.  It is true that PADD1 distillate Inventories are well below the five year average and PADD1A (New England) is even more tight, however, it is important to understand the term “days of supply”.  That is defined as if everything stopped today.  No production, no pipeline shipments, no vessels, no trucking and we kept using as much distillates as we are at this very moment.  Slightly different than how it can be perceived by watching a news clip. 

Distillate inventories were actually slightly up this week as exports fell by some 300k barrels per day, although our inventories are still some 20mbl below last year.  Key to yesterdays inventory report was that refinery utilization (production) is running at 91% which is up over 4% versus last year and historically this is a high rate.

So what does all this mean?   

We have been saying for several weeks that the distillate inventory picture is not the brightest, even more so in New England.  The news cycle has taken hold of this, and judging by the number of calls and conversations I’ve had in the last week, it is starting to sink in. 

Many refer to Diesel as being the backbone of the American Economy.  Trucks, trains, equipment, and ships all rely upon diesel for power.  So when a blowout happens, it can affect mostly all aspects of our daily lives - from the food we buy, to the clothes we wear, and even the way we operate our businesses, even if those blowouts are short lived. 

Since last Thursday we have seen the spread between future prices and cash prices grow to $.80 on Monday only to subsequently fall to $.55 yesterday.  (see chart below).  Tuesday and Wednesday saw diesel values weaken as deals appeared to be getting done for physical product delivered into New York Harbor. 

If there is one thing that I am sure of in all my years in this Industry it is that Customers do not like surprises. 

The last two weeks (or two years for that matter!) have certainly offered up many surprises.  News over the last three days has highlighted “Crude prices falling”, however, the disconnect from Crude pricing to the finished diesel product pricing has never been more sharply contrasted. Front month Diesel futures have once again skyrocketed $.80 to touch the $4.00 level in the last two weeks for the fifth time.  The rapid rise and rapid drop cycle doesn’t seem to be ending anytime soon. 

Volatility continues to have a hold on the diesel market.  In the past week alone, we have dropped over $.30 and subsequently rose $.30 in just four sessions.