Petroleum Products – Short-Term Energy Outlook

Onyx Power and Gas Consulting continues with its weekly series providing the Short-Term Energy Outlook as of September 11, 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 $1.95 per gallon (gal) on September 6 (Figure 5), a decrease of 9 cents/gal from August 1. The RBOB–Brent crack spread (the difference between the price of RBOB and the price of Brent crude oil) decreased by 19 cents/gal to settle at 13 cents/gal during the same period. The RBOB–Brent crack spread declined for most of August and then fell further at the beginning of September, when the front-month contract rolled to October delivery, which reflects winter-grade gasoline that is cheaper for refineries to produce.

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

U.S. motor gasoline inventories: For the four weeks ending August 31, finished motor gasoline production averaged slightly higher than the August 2017 monthly average. Consumption including exports, however, declined from last year’s record high for August to an estimated 10.3 million barrels per day (b/d) in August 2018. The higher production and lower consumption (including exports) resulted in a rare increase in total motor gasoline inventories for the month of August (Figure 6). Total motor gasoline inventories ended the month slightly higher than the top of the five-year (2013–17) range for August.

Figure 6: Change in August U.S. gasoline inventories

Ultra-low sulfur diesel prices: The front-month futures price of ultra-low sulfur diesel (ULSD) settled at $2.21/gal on September 6 (Figure 7), an increase of 11 cents/gal from August 1. The ULSD–Brent crack spread (the difference between the price of ULSD and the price of Brent crude oil) rose by 1 cent/gal to settle at 39 cents/gal during the same period. ULSD crack spreads were at or higher than the five-year average in August in the United States and also in major international trading hubs such as Northwest Europe and Singapore. Strong global economic growth has contributed to higher demand for distillate fuel for much of the past year. In addition, a fire and temporary shutdown of Brazil’s largest refinery in late August resulted in Petrobras, Brazil’s national oil company, purchasing several distillate cargoes from the United States, which also contributed to higher ULSD crack spreads.

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

U.S. distillate inventories: In the United States, distillate consumption during the first five months of 2018 was the highest since 2007, which helped to pull inventories below the five-year range in May (Figure 8). Since May, however, U.S. consumption including exports of distillate have shown year-on-year declines largely because of lower export growth. Refinery distillate production in June reached a record high for the month, and weekly estimates indicate similar record production levels for July and August, if confirmed in monthly data. The high production levels and lower consumption (including exports) levels contributed to inventory builds in each of the past three months that were higher than the five-year average, bringing distillate inventories back into the five-year range by the end of August.

The disruption at the Brazilian refinery, which has restarted at reduced operating rates, may provide some additional demand for distillate exports from the United States in the near term, but whether the recent slowdown in U.S. distillate exports is temporary or whether it indicates a longer-term slowing of trade flows is unclear.

Figure 8: U.S. distillate inventory

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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