Onyx Power and Gas Consulting continues a weekly series providing the Short Term Energy Outlook as of May 9, 2017.  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) declined 21 cents per gallon (gal) since April 3, settling at $1.48/gal on May 4 (Figure 4). The RBOB-Brent crack spread (the difference between the price of RBOB and the price of Brent crude oil) declined 10 cents/gal, settling at 33 cents/gal over the same period.

Despite weekly data showing April 2017 gasoline consumption plus exports set a new five-year high for the month, gasoline crack spreads averaged the lowest for the month of April since 2013. High gross refinery inputs contributed to a counter-seasonal rise in gasoline inventories, pressuring gasoline crack spreads to lower levels than in previous years. In this STEO, EIA estimates that U.S. total motor gasoline inventories rose 0.9 million barrels in April, compared with an average decline of 4.4 million barrels over the past five years.

Figure 4: Brent crude oil vs U.S. and Chinese equity indices

Gasoline spot market: The spot price premium of New York Harbor conventional gasoline over Gulf Coast conventional gasoline was 1 cent/gal on average in April (Figure 5), 7 cents/gal lower than the average premium over the past five years. High gasoline inventory levels in Petroleum Administration for Defense District (PADD) 1 (the East Coast), along with an increase in U.S. gasoline exports, may have contributed to the narrow premium of New York Harbor gasoline over Gulf Coast gasoline. On the East Coast, total gasoline inventories have remained high since the start of 2017, either reaching or setting new five-year highs. However, gasoline inventories in PADD 3 (the Gulf Coast) have generally stayed within the five-year range so far in 2017. Because most U.S. gasoline exports originate from PADD 3, initial data from the Weekly Petroleum Status Report showing U.S. finished gasoline exports rose by almost 0.1 million barrels per day (b/d) from March to April likely helped to limit gasoline stock builds on the U.S. Gulf Coast given the high level of refinery runs.

Figure 5: Crude oil implied volatility

Ultra-low sulfur diesel prices: The ultra-low sulfur diesel (ULSD) futures price decreased 15 cents/gal since April 3, settling at $1.41/gal on May 4. The ULSD-Brent crack spread declined by 4 cents/gal, settling at 26 cents/gal over the same period (Figure 6). Compared with last April, however, the ULSD crack spread was 9 cents/gal higher on average this year.

In contrast to U.S. gasoline stocks, U.S. distillate stocks declined from March to April, despite high refinery runs. U.S. distillate consumption set a new five-year high in April, as increasing activity in the U.S. industrial and transportation sectors may be supporting domestic distillate consumption. U.S. industrial production growth in the first quarter of 2017 accelerated from the third and fourth quarters of 2016. In addition, weekly rail traffic data from the Association of American Railroads indicate that rail traffic, which uses diesel fuel, has been higher so far in 2017 than during the same period in 2016. Also, oil and natural gas drilling rigs use diesel fuel in their operations and transport, and the increase in drilling activity in 2017 is likely also contributing to higher diesel consumption.

In addition to U.S. domestic consumption, U.S. distillate exports have remained stable at about 1.1 million b/d, on average, since January. However, during the week ending April 14, U.S. distillate exports set a weekly record of 1.4 million b/d. Declining distillate stocks and strong distillate consumption domestically and internationally have kept ULSD crack spreads in 2017 above 2016 levels.

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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