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$100/b darlings of US oil could lead way for crude

The oil world seems ready, or even desperate, to take $100/b crude to the party.

But while the dirty markets are still hunting for their bow ties, some US refined products are already bouncing across that dance floor.

Low-RVP San Francisco 84-octane gasoline blendstock was assessed up $1.76/b at $1.0109/b Tuesday — its first day over the $100/b threshold since August 11, 2015. Los Angeles blendstock summited $100/b Monday.

Of course, that’s the price on the Kinder Morgan pipeline. You’ll pay a lot more at the pump in Petaluma.

The magic number in cents/gal for $100/b gasoline is 238. Low-octane fuel in Portland, Oregon, and Seattle was seen nearing that threshold Tuesday afternoon.

One grade of product that’s far more like crude, the refinery feedstock vacuum gasoil, is on track to summit $100/b some time later this month.

VGO at 20-25 API has a density lower than some crudes. It feeds a fluid catalytic cracker or hydrotreater to make gasoline and diesel. Differentials have been in the high teens against crude futures so far this fall, leaving Europe market players sending more barrels to US ports to leverage the arbitrage.

Low-sulfur VGO barges at Los Angeles have held over $90/b for 11 straight trading days and were down 67 cents at $95.48/b Tuesday.

Since August 14, the California feedstock has been rising at 41 cents per trading day. At that rate, it would go over $100/b on October 16.

Proceed with caution on such speculation, however. One US feedstocks source said VGO seems ready for a fall.

“I feel like we are topping out here and there is not much room to move up,” the source said.

As for crude, front month Louisiana Light Sweet at St James, Louisiana, rose $2.17/b to $83.37/b Tuesday. Since August 14, it has been rising at a rate of 42 cents per trading day. If it keeps that pace — and that is a huge if — it could cross the $100/b threshold in early to mid-November.

WTI assessments remain in the $70s, well off the threshold. $100/b crude could be expected to generate interest in oil exploration, gasoline blending and dozens of other oil venture.

There is a dark side to three-digit crude, although you’d be stuck finding anyone talking about it in Houston or Calgary. “It would be devastating for global economies,” a US market source said. “Demand would crash. Public transportation usage would soar. It would be good for Tesla, though.”

A second market source said the lack of pipeline capacity to move US sweet crudes will put brakes on those markets. That source predicted the second half of 2019 for $100/b crude.
Source: Platts

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