Energy Market Updates

Not to brag, but I cook a mean steak.  Most hate the process, but enjoy the results.  It’s takes time and patience to get the perfect medium rare.  No quick fixes or shortcuts….  Same can be said about fuel pricing the last 30 days.  Even though diesel pricing is down over $.40 since mid September, it has been a real grind getting here.   The Israeli – Hamas conflict continues to be the flame keeping front month prices elevated.  As concern of this developing into a much larger regional conflict persist.  Domestically, fundamentals have kept pricing in check as Inventories have shown a mixed bag, but the real news is in the demand numbers.  Gasoline demand is down slightly over last week and last year, while distillate demand was down a whopping 8% to last week, yet up 5% to last year.  Trucking tonnage, the blood pressure of the transportation industry and overall economy, was down 4.1% in September over last year. (trucking is ¾ of all transportation modes in the US) this typically signals weaker pricing to follow.  Add in that IEA recently published they see peak Oil demand to hit in 2030, vastly different that OPEC’s estimation of 2045. 

We suggested last week that there would likely be sideways action in the market as everyone digests what impact production cuts will have, and that is exactly what has happened.  We have seen large daily moves, but overall we are just about where we were a week ago. 

Diesel futures continue to oscillate on both technical and fundamental influences.  We had mentioned to many, don't be surprised if the March contract touches the support level of $2.65 area when in it was trading above $3.25 in late January.  Low and behold on Monday it bounced off $2.6649 before jumping another $.20 over the next two sessions. 

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?