Petroleum Products – Short-Term Energy Outlook

Onyx Power and Gas Consulting continues with its weekly series providing the Short-Term Energy Outlook as of December 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 $1.43 per gallon (gal) on December 6 (Figure 5), a decrease of 28 cents/gal from November 1. The RBOB–Brent crack spread (the difference between the price of RBOB and the price of Brent crude oil) increased by 2 cents/gal to settle at 0 cents/gal during the same period.

The RBOB–Brent crack spread was negative for 18 consecutive days in late October through mid-November, the longest such stretch since 2011. According to EIA’s latest Petroleum Supply Monthly, U.S. gasoline consumption declined by 260,000 barrels per day (b/d) year-over-year in September. STEO estimates that U.S. gasoline consumption continued to decline year-over-year for the fourth consecutive month in November. In addition, low international demand and increased global gasoline supply likely contributed to reduced U.S. gasoline exports. EIA estimates U.S. gasoline exports to have declined year-over-year by 289,000 b/d in November, based on the four-week average through November 30.

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

Singapore gasoline and fuel oil: Unique market dynamics in Singapore brought wholesale fuel oil prices near parity with gasoline prices for the first time based on available data. The Singapore fuel oil–gasoline spread increased to just under 0 cents/gal on December 4 before settling at -6 cents/gal on December 6 (Figure 6). The Asian gasoline market received several new sources of supply in 2018. The startup of a refinery in Vietnam has reduced gasoline imports into the country, and new Chinese refinery projects have contributed to increased gasoline exports. The Chinese government recently granted more export quotas—the fourth announcement this year—to state-owned refiners, which could contribute to additional regional supply. In contrast, the fuel oil market has been comparatively strong. Inventories in Singapore have remained lower than their five-year (2013–17) minimum level for most of the second-half of 2018. Russian fuel oil production, which has traditionally been a major supplier to Asian customers, also continues to decline because the country has upgraded its refineries.

Figure 6: Singapore fuel oil minus gasoline

Ultra-low sulfur diesel prices: The ultra-low sulfur diesel (ULSD) front-month futures price for delivery in New York Harbor settled at $1.86/gal on December 6 (Figure 7), a decrease of 34 cents/gal from November 1. The ULSD–Brent crack spread (the difference between the price of ULSD and the price of Brent crude oil) decreased by 4 cents/gal to settle at 43 cents/gal during the same period.

The ULSD–Brent crack spread approached a four-year high in mid-November of 52 cents/gal and averaged near the top of its five-year range in November. U.S. distillate inventories remain 10% lower than the five-year average, and the increasingly tight market was met by colder than normal weather. Temperatures in November were the coldest for the month in four years, and STEO estimates U.S. distillate consumption was the highest for the month of November on record, averaging 4.2 million b/d.

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

Gasoline-to-distillate production ratios and prices:The recent declines in gasoline prices relative to distillate prices are also reflected in the futures curves for both products, which could have an effect on the relative production of each fuel in the United States. The RBOB–ULSD front-month spread averaged -49 cents/gal in November, the lowest in 10 years (Figure 8). Averaging the spread between front-month contract prices and those six months in the future (to account for the seasonality in the RBOB futures curve), the RBOB–ULSD price spread declined to a monthly average of -37 cents/gal in November (Figure 9). The relative prices of these two products could have an effect on refinery operations and ultimately the amount of production of each fuel. Absent significant investments in new equipment, refiners can make small adjustments to their crude slate and operations to shift their yields of gasoline or distillate. When the RBOB–ULSD spread averaged 12 cents/gal in the first quarter of 2016, refiners adjusted operations to increase the relative production of gasoline to distillate. Now that the spread has reached significantly lower levels, STEO estimates the gasoline-to-distillate production ratio declined to less than 1.5 in November. The last time the ratio fell below 1.5 was in January 2015.

Figure 8: Monthly average RBOB-ULSD spread
Figure 9:RBOB-ULSD spreads and gasoline-to-distillate production ratio

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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