The fading probability of a summer time gas demand enhance is prompting extra US refiners to hedge as a way of locking in revenue amid the specter of run cuts.
Industrial gamers, which embody refiners, have elevated their bearish brief positions in gasoline to not less than 200,000 contracts this yr, in accordance with the Commodity Futures Buying and selling Fee. That’s up from a mean of 180,000 within the second half of final yr.
“Hedging exercise has elevated a fantastic deal over the previous few months,” stated Vikas Dwivedi, a worldwide oil and fuel strategist at Macquarie Group.
The margin of revenue refiners earn from turning a barrel of crude into fuels has sunk because the US and China present indicators of financial weak spot. Demand for diesel, usually considered as a proxy for industrial exercise, is faltering globally. Within the US, gasoline demand simply tumbled by almost 900,000 barrels a day as recessionary fears dampen hope for a blockbuster summer time.
Mockingly, hedging might compress margins additional as fuelmakers defend earnings by shopping for crude paper and going brief on gasoline and diesel. “Refinery run cuts might finally be wanted to rebalance each crude and product markets,” Dwivedi stated.
With gasoline demand nonetheless beneath pre-pandemic ranges, AEGIS Hedging has been advising finish customers and refiners to organize for the demand outlook to worsen.
Some fuelmakers are sad with the quantity they’re locking in, stated AEGIS Vice President of Fuels Zander Capozzola. Nevertheless it’s “like making an attempt to catch a falling knife.”