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While it might be hard to think about cold weather with temperatures in the 60s across the region, keep in mind that all too often, we still have an arctic blast come through late February into March. Staying the course with a winterized fuel is critical to a smooth operation this time of year.
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.
The wild ride continues as in just under two weeks, we have erased $.50 of value on the futures market. Front month ULSD fell $.1937 yesterday setting us up for a test of key technical support levels.
Diesel Futures have risen just over $.25 in the last week, for largely the same reason as they tanked the week before. China is now lifting most Covid restrictions, as traders now see demand picking up on the world basket. Even though we are still seeing huge weekly swings, the overall temperature of Distillates looks to be cooling off since trading some $.75 higher than presently mid summer (see below).
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.
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.