Volatility was the name of the game for east of the Rockies gasoline and distillate spot markets in 2022, with the war in Ukraine creating upheaval in Europe and shifting international product movements.
With stubborn global inflation, the increased likelihood of a U.S. recession this year and continued conflict between Russia and Ukraine, this year’s uncertainty will hang over the marketplace into 2023.
For much of 2022, gasoline and distillates contended with steep backwardation — in both futures and physical markets — with prices dropping off quickly over time. The backwardation widened in the wake of the Ukraine invasion, as refined product exports rose.
But that pricing structure changed quickly in December, as RBOB prices moved toward a contango structure, with front-month RBOB futures valued below the next-month futures contract. The backwardation in ULSD futures narrowed to roughly 3cts between front-month and next-month contracts in early December.
With east of the Rockies production levels high and inventories remaining low along the East Coast (PADD 1), domestic and international product flows are likely to continue to play a sizable role in the year to come.
The Chicago spot fuel market is complex, with gasoline, diesel, jet fuel and kerosene sourced via several pipelines.