Petroleum Products – Short-Term Energy Outlook

Onyx Power and Gas Consulting continues with its weekly series providing the Short-Term Energy Outlook as of June 12, 2018.  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 $2.11 per gallon (gal) on June 7 (Figure 5), an increase of 3 cents/gal from May 1. The RBOB–Brent crack spread (the difference between the price of RBOB and the price of Brent crude oil) declined by 7 cents/gal to settle at 27 cents/gal over the same period.

Higher-than-average U.S. gasoline inventories continue to put downward pressure on the gasoline crack spread, despite EIA estimates that U.S gasoline consumption neared or surpassed monthly five-year highs from March through May. STEO estimates U.S. gasoline inventories were 239.0 million barrels at the end of May, 9.5 million barrels higher than the five-year average for May.

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

This forecast estimates that the U.S. average retail price of regular grade gasoline will reach its peak this year in June at an average of $2.92/gal and then begin to decline. The U.S. average retail gasoline price is forecast to fall to an average of $2.91/gal in July. A probability calculated using futures and options data indicates that there is roughly a 7% chance of U.S. retail gasoline prices reaching an average of $3.00/gal in July. In the five trading days ending June 7, the July 2018 RBOB futures contract averaged $2.11/gal. Options prices imply this contract has a 7% probability of exceeding $2.30/gal, which typically leads to a retail price of $3.00/gal at the contract’s expiration at that time of year (Figure 6). The probability of reaching $3.00/gal was at 36% on May 22, when RBOB prices reached the highest level since late 2014.

Figure 6: Probability of July 2018 retail gasoline exceeding different price levels at expiration

Ultra-low sulfur diesel prices: The ultra-low sulfur diesel (ULSD) front-month futures price increased 13 cents/gal from April 2 to settle at $2.11/gal on May 3. The ULSD–Brent crack spread (the difference between the price of ULSD and the price of Brent crude oil) declined by 1 cent/gal to settle at 36 cents/gal over the same period (Figure 7).

The ULSD crack spread fell sharply on May 31. This decline may have been caused by a rise in U.S. distillate stocks during that week, in contrast to a decline in crude oil stocks, and also potentially by lower-than-normal trading volumes for futures contracts at the end of every month as they expire. Therise in U.S. refinery utilization at the end of May, particularly on the U.S. Gulf Coast, could have been responsible for the rise in petroleum product inventories.

Despite increased production contributing to a lower ULSD crack spread, U.S. distillate consumption is still robust, even as this year’s heating season ended. In the June STEO, EIA estimates that distillate consumption in May was 4.0 million b/d, the highest for the month since 2007, and it also estimates that distillate consumption will be near five-year highs through the summer months. Distillate consumption is likely supported by continued growth in U.S. industrial activity. U.S. industrial production reached a record high in April, surpassing the previous record set in late 2014. Further, several trucking indicators show increased trucking tonnage and trucking demand in the United States this year, which supports increased demand for diesel fuel.

Figure 7: EUROBOB-Brent crack spread

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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