Petroleum Products, Short-Term Energy Outlook 06-19

Onyx Power and Gas Consulting continues with its weekly series providing the Short-Term Energy Outlook as of June 11, 2019.  This series of news articles should provide a complete insight on the current conditions of the energy…enjoy, check out archives and come back each week for additional information on how all sorts of energy sources impact our daily lives.

Petroleum Products

Gasoline prices: The front-month futures price of reformulated blendstock for oxygenate blending (RBOB, the petroleum component of gasoline used in many parts of the country) settled at $1.71 per gallon (gal) on June 6, down 36 cents/gal since May 1 (Figure 5). The RBOB–Brent crack spread (the difference between the price of RBOB and the price of Brent crude oil) declined by 11 cents/gal to settle at 24 cents/gal during the same period.

After increasing in April, the gasoline crack spread again dropped lower than the five-year (2014–18) range in May, averaging 4 cents below the previous five-year low of 35 cents for that month in 2018. Factors contributing to the smaller crack spread could include gasoline stock builds and gasoline consumption that were lower than year-ago levels. EIA estimates that U.S. gasoline consumption averaged 9.39 million barrels per day (b/d) in May, a decrease of 0.16 million b/d from the same period last year. Gasoline stocks increased during the month, ending close to the five-year average after ending April 6% lower than year-ago levels.

Flooding in the Midwest reduced refinery operations in Oklahoma and limited crude oil and product deliveries to the region’s refineries, preventing crude and product movement from the Gulf Coast to the Midwest and contributing to regional disparities in U.S. gasoline stock levels. In addition, refinery issues on the West Coast normalized mid-month, contributing to a stock build in that area. EIA estimates gasoline stocks ended May 4% higher than the five-year average on the Gulf Coast and 6% higher than the five-year average on the West Coast, while gasoline stocks in the Midwest were 7% lower than the five-year average.

Figure 5: Historical RBOB front-month futures prices and crack spread

Gasoline spot price differentials: In contrast to the United States, gasoline prices increased in Northwest Europe in May (Figure 6). Refinery shutdowns in the region, combined with the contamination of crude oil import pipelines from Russia, contributed to reduced refinery runs and gasoline production in Europe. Northwest Europe’s gasoline–Brent spot crack spread rose higher than the five-year low for the first time in 6 months and higher than the five-year average for the first time in 17 months. On May 20, these factors contributed to the lowest Gulf Coast gasoline spot price relative to Northwest Europe since November 2015. On May 31, they contributed to the lowest New York Harbor gasoline spot price relative to Northwest Europe since August 2011.

Figure 6: Gasoline spot price differentials

Ultra-low sulfur diesel prices: The ultra-low sulfur diesel (ULSD) front-month futures price decreased 31 cents/gal from May 1 to settle at $1.79/gal on June 6. The ULSD–Brent crack spread (the difference between the price of ULSD and the price of Brent crude oil) declined 6 cents/gal to settle at 32 cents/gal during the same period (Figure 7).

EIA estimates that U.S. distillate consumption in May was 3.9 million b/d, 380,000 b/d lower than in May 2018 and 40,000 b/d lower than the five-year average. However, some of the available transportation data are mixed. The truck tonnage data from the American Trucking Association for April (most recent available) show a 7.7% year-over-year increase, whereas the April 2019 Cass Freight Index report—reflecting the volume of freight shipments via all modes of domestic freight transportation, including rail, truck, and air—shows a 3.2% contraction for the month. Despite these and other economic indicators reflecting a potential slowdown in growth, EIA estimates distillate consumption will return to year-over-year growth through the third quarter of 2019. EIA’s forecast is based on the expectation of a 2.7% growth in U.S. GDP in 2019, indicating future growth in overall diesel demand.

Figure 7: Historical ULSD front-month futures price and crack spread

U.S. Gulf Coast refinery margins: The recent increase in medium and heavy crude oil prices that peaked in November 2018 reversed somewhat in March, April, and the first half of May 2019, before increasing again in late May. Reductions in crude oil production from Venezuela are likely increasing the price of medium and heavy crude oils compared with light crude oils. The 5:3:2 crack spread—refining three barrels of gasoline and two barrels of distillate from five barrels of Mars crude oil, which exemplifies a complex U.S. Gulf Coast refinery margin—averaged $13.94 per barrel (b) in May, after reaching a 2019 high of $16.95/b (40 cents/gal) on April 10 (Figure 8). Comparatively stable distillate crack spreads have supported total refinery margins. Although U.S. Gulf Coast gasoline crack spreads have remained positive since February, weaker crack spreads in May put downward pressure on margins from the April highs.

Figure 8: U.S. Gulf Coast refinery margins, five-day moving average

The professional consultants at Onyx Power & Gas Consulting are always ahead of the current issues that may affect energy consumption and pricing. Now is the time to partner with an Onyx professional consultant to discuss energy management and secure energy prices based on today’s stable pricing. Volatility in the energy markets makes it too precarious to take chances. Partner with Onyx Power & Gas in Making Energy Make a Difference!

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