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Market Talk - 2024 june

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Market TalkFriday, Jun 28 2024

Energy Market Resurgence Amid Summer Storms and Price Spikes

Energy futures are ticking modestly higher to cap off a month in which prices started out weak but ended strong, offering hope to producers and refiners who were otherwise staring at a summer of discontent. Diesel prices started the month by dropping to their lowest level in more than a year but have rallied more than 30 cents since June 4th. Gasoline prices touched their lowest level since February (which was a much cheaper winter-spec product) before rallying 25 cents in the past 3.5 weeks. Weekly charts now suggest both RBOB and ULSD have a chance to make a run at the $2.80 mark in July, if they can break through near term resistance around $2.60.

Today is expiration day for July RBOB and ULSD futures. Most cash markets have already rolled to trading vs August, but for the NYH and Group 3 markets that will shift today, be sure you’re looking at the RBQ and HOQ codes for price direction today.

Next week spot markets will not be assessed both Thursday and Friday, but futures will trade in an abbreviated session Thursday (no settlements) and a full day on Friday, so there’s an increased chance that rack prices could move over the extended quasi-4-day weekend.

BP announced a hiring freeze and a pause in new large renewables investments, just a week after announcing a new investment in 2nd generation ethanol in Brazil, which has the potential to achieve much lower carbon intensity than US made ethanol. This is just another harsh reminder that renewables are only really sustainable if they can make a return.

The EIA this morning highlighted the shifting patterns in US commercial electricity demand as rapid growth in data centers have created huge new consumption in several states, while others suffering through a so-called brain drain migration pattern see their volumes decline. While the US has more natural gas than it can consume domestically, which helped push prices to record lows earlier this year, getting that gas to where it needs to be, exactly when it needs to be there to support the rapid changes in electricity demand is expected to be a challenge for years to come.

They said it was going to be a busy hurricane season, and so far they’re not wrong as the NHC is tracking 3 different potential storm systems, and we haven’t even hit July. One of the three to keep an eye on is known as 95L at the moment but is given 90% odds of being named (Beryl) in the next few days as it moves towards the Caribbean.

The European model which has had a better track record for accuracy suggests there’s at least a good chance this storm keeps heading west over land in Mexico late next week, which means it could end up being a non-issue for the US. That said both the Euro and GEFS models are showing at least some potential that this system takes aim at the Houston area, which of course is the heart of the industry and has the most potential for wide-spread disruption if various production, shipping, refining or pipeline activities are forced to close. It looks like next Wednesday is about when this system will either make its turn north towards the Gulf and make it a big deal or continue West and let the industry breathe a sigh of relief.

Meanwhile the first storm of the 3 to be tracked (94L) looks like a non-event even though it’s expected to be in the SW Gulf of Mexico next week as it will move west over Mexico. For a country who is seeing widespread issues due to heatwaves and a lack of water, this could actually be good news depending of course on where and how quickly that rain hits.

The 3rd storm is given 20% odds of forming in soon-to-be Beryl’s wake, and it’s too soon to say where it might be headed if it does form.

Click here to download a PDF of today’s TACenergy Market Talk.

Market TalkThursday, Jun 27 2024

The Threat Of A Tropical Storm System Targeting The US Increased Dramatically In The Past 24 Hours

Refined product futures have found their footing and are rallying for a 2nd straight day to their highest levels in over a month as technical resistance broke down Wednesday and the US faces its first potential major storm threat of the season.

The threat of a tropical storm system targeting the US increased dramatically in the past 24 hours. The NHC is still tracking 2 systems, the first known currently as 94L is still given low odds of development, and models have it moving inland over Mexico and not being a threat to the US. The 2nd system known as 95L that’s moving over the central Atlantic was given 30% odds of developing yesterday but now is given 70% odds of being named as it approaches the Caribbean. Long term models suggest this storm will make a northerly turn, with the entire Gulf of Mexico from Texas to Florida shown as possible targets late next week.

More East Coast thunderstorms reminded us that a storm doesn’t need a name to disrupt energy infrastructure, with the 2nd major terminal of the week taken offline by storm damage. The difference of course is usually this type of event takes just hours to fix the damage, compared to days and weeks with a hurricane.

Yesterday’s DOE report showed refinery runs dropped for a 3rd week, with all 5 PADDs seeing decreases run rates. It appears that refiners may have gotten the memo that supplies are more than ample to cover demand, which has pushed crack spreads dangerously close to break-even levels across larges parts of the country. It’s also possible that the declines are nothing more than the typical rash of unplanned upsets that are common, particularly with high heat challenging facilities across most of the country, and seasonally we don’t expect to see run rates to peak for the year until later in the summer.

Gasoline demand snapped a 2 month-long streak of demand estimates that beat the 5-year seasonal average (which really isn’t saying much considering the 5-year average includes the COVID lockdowns) but given the relatively new Federal holiday in the middle of the week, that decline in the weekly estimate isn’t too surprising. What’s more troubling for suppliers is that PADDs 3, 4 and 5 are all showing inventories well above average levels, with most at or above the top end of their seasonal range. PADD 1 is the only region in the US with inventories materially below the 5 year average, which helps explain why gasoline line space values along Colonial have been holding north of 8 cents/gallon the past few weeks.

The changes in diesel supply look unimpressive at first glance, but if you account for the 5-6 million barrels of RD inventory that’s not included in the DOE’s weekly figures, actual inventories are approaching 3-year highs. The PADD 5 chart is the most glaring of course, showing the official estimate to be 10 million barrels of diesel supply along the West Coast which is 20% below the low end of the seasonal range and 30% below average, but in reality, the total diesel stocks including renewables are sure to be north of 14 million, which is right at the top end of the seasonal range. We saw this similar phenomenon with ethanol about 15 years ago, and it took a few years to add the new product into their weekly survey.

The new giant Dangote refinery in Nigeria that is becoming a swing producer of distillates for the entire Atlantic basin had a fire yesterday, and depending on which headline you believe, it was either a major disaster, or a non-issue. Company officials say the fire only impacted a waste-water treatment facility not operating units.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Market TalkWednesday, Jun 26 2024

Energy Prices Are Trying To Rally To Start Wednesday’s Session, Despite Reports Of More Inventory Builds

Energy prices are trying to rally to start Wednesday’s session, despite reports of more inventory builds, as the choppy back and forth action continues. For Brent crude, this would mark a 7th day of alternating results, with the $85 mark acting as a magnet for prices to return to short term. WTI is in its 5th straight day of alternating between gains and losses, while refined products are acting just slightly more bullish, hovering just a few cents below multi-month highs.

The API reported a build in gasoline stocks of more than 3.8 million barrels last week, despite anecdotal evidence that demand had ticked up across the country during the heatwave. The API also reported a small build in crude oil stocks of just under 1 million barrels, while distillates declined by 1.2 million barrels. The DOE’s weekly report is due out at its normal time this morning. The EIA this morning published a note highlighting that US energy production had exceeded consumption by a record amount in 2023. Many will cheer this as a major success in energy independence, while US refiners may also lament the fact that this means they’re more dependent than ever on being able to sell their product overseas.

Ethanol prices have rallied to an 8 month high this week, despite a drop in corn prices. It appears that some supply tightness in Europe is contributing to the bid in the US. Ethanol and biodiesel producers are still lobbying the EPA to change their mind on the Renewable Fuel Standard targets for 2024 and 2025, filing a new petition this week to try and get the mandate increased to boost RIN values that have crushed many producers in their slide from $1.50/RIN a year ago to around $.55/RIN today.

The NHC is tracking 2 storm systems with 20-30% odds of being named in the next week. While the odds of either system becoming a major threat to energy infrastructure are low, their development areas do give some potential for heading to the refining zone, so they’ll be watched closely for a few more days. It’s very early in the season to be talking about this type of threat, but given the record warm water temperatures, there’s no reason we couldn’t see an early storm threat this year.

You want something from me? Exxon is taking a new tactic in its negotiations with striking refinery workers at its Gravenchon refinery in France, threatening to suspend production at the facility if access continues to be blocked. Considering that the worker are protesting a planned shutdown of the facilities chemical manufacturing units at the facility in the first place, it doesn’t seem like the company is bluffing. Striking workers are also faced with the reality that the entire Atlantic basin is seeing ample supplies of diesel fuel, reducing the leverage they may have had a couple of years ago in these strikes.

The final report from the US Chemical Safety board on the BP/Husky refinery explosion that killed 2 workers in 2022 offers a harsh reminder on how complex modern refinery operations can be. The report noted more than 3,700 alarms sounded in the 12 hours leading up to the event, which “distracted and overwhelmed” operators. Both BP and Husky have an unfortunate track record on blowing up other facilities before selling them to new owners such as BP Texas City (now Marathon’s Galveston Bay plant that continues to have a rough safety track record) and Husky’s Superior WI facility that blew up in 2018 and was sold to Cenovus along with the rest of Husky’s operations.

Click here to download a PDF of today's TACenergy Market Talk.

Market TalkTuesday, Jun 25 2024

The Search For Direction Continues In Energy Markets With Diesel Contracts Trying To Lift The Complex Higher

The search for direction continues in energy markets with diesel contracts trying to lift the complex higher, while oil and gasoline prices pull modestly lower to start Tuesday’s trading. Brent Crude settled above $86 for the first time in 2 months Monday, with fresh geopolitical tensions as Iran and Hezbollah seem ready to take a bigger role in the war against Israel getting credit for much of the increase, while we saw money managers jumping back in to their bets on higher crude prices in the past week.

The CFTC’s delayed weekly Commitments of Traders report showed funds were much less bullish on NYMEX contracts than they were their ICE counterparts last week. WTI and RBOB contracts saw a net reduction in length held by money managers while ULSD saw its net short position cut in half.

Citgo reported a snag in restart efforts at its Corpus Christi West refinery that had units offline for maintenance and then faced delays following Tropical Storm Alberto last week. The latest filing of flaring at a tail gas incinerator appears to be minor and shouldn’t prevent the startup efforts from continuing this week. Valero reported an upset at its McKee TX refinery impacting the sulfuric acid vent as they were attempting restart this week.

Updates on the 2 new refineries in the Atlantic basin that are posing a major threat to existing facilities already struggling to turn a profit:

A Reuters article this morning confirms what many have already concluded: Mexico’s Dos Bocas refinery is nowhere near ready to produce finished products, despite so many claims to the contrary by the country’s President. The multi-year delays at that facility are good news for US Gulf Coast refiners in particular who depend on Mexico for roughly 50% of their gasoline exports and 20-30% of their diesel exports. Brazil used to account for the largest share of US diesel exports, and now has turned almost exclusively to Russian supplies, making the demand from Mexico even more important to US refiners than it was just a year or two ago.

Meanwhile, the huge Dangote refinery in Nigeria has been producing some limited amounts of distillates and already having an impact on the product flows in the Atlantic. It seems that all is not well at the facility however as the company’s Vice President accused international oil companies of conspiring against the new facility by preventing it from purchasing crude oil to run the plant. While the Dangote refinery is certainly a threat to several refineries, it could also benefit others as it does not seem ready to produce on-spec ULSD or Gasoline, and is instead sending partially refined products abroad for more complex facilities to process, presumably at advantaged prices, and replacing some of the partially refined oil those facilities were buying from the Russians before the full invasion of Ukraine.

The NHC is tracking a tropical system north of Venezuela that is given 20% odds of being named and heading for the SW Gulf of Mexico next week. The low odds and position of the potential development suggest it won’t be a threat to the oil production and refining zones, but it will be watched for a few more days just in case.

Today’s interesting read: A debate on the pros and cons of Ukraine’s attacks on Russian refineries.

Click here to download a PDF of today's TACenergy Market Talk.

Market TalkMonday, Jun 24 2024

Energy Markets Are Trading Quietly Lower To Begin The Week, As The Upward Momentum Of The Prior 2 Weeks Is Clearly Waning

Energy markets are trading quietly lower to begin the week, as the upward momentum of the prior 2 weeks is clearly waning. Charts still suggest we’re likely to see a stretch of sideways action near term as traders re-set positions after the big shorts finish their unwinding and the positioning for the next big move begins.

10 days ago, there were reports that diesel in Europe was showing signs of tightness again, which aided in the price rally that added nearly 30 cents to ULSD values in just over 2 weeks. This week there are reports that traders are converting the largest tankers in the world to carry diesel instead of crude oil, to haul some of Asia’s excess supply to the west, which is likely to help keep a lid on any price advances in the Atlantic basin.

The CFTC’s weekly Commitments of Traders report is delayed until later today due to the holiday last week, but the European data published shows that short covering continued for money managers last week, and a large number of funds turned around and jumped on the bullish bandwagon, creating a 93% increase in net length for Brent and Gasoil contracts last week. While the funds getting long was the big story, the producer/merchant trade category also saw a healthy increase in short positions, which suggests the big physical players in the industry see the June recovery rally as a good opportunity to put on some hedges for their future production.

Baker Hughes Reported a net decrease of 3 oil rigs active in the US last week, bringing the total to a fresh 2.5 year low at 485, while natural gas rigs held steady at 98.

The tropics are taking a week off after having 3 potential storms, including our first named tropical storm of the season a week ago. The NHC reports no activity is expected in the next 7 days. Meanwhile, we’re reminded that it doesn’t take a named storm to create issues with supply infrastructure as a large terminal in Linden New Jersey is being taken offline today for emergency repairs to fix damage done by thunderstorms over the weekend. The silver lining with those storms as they’ll usher in cooler temperatures for large portions of the country that weren’t enjoying a heat wave last week.

Valero’s 3 rivers refinery in South Texas reported an upset in a sulfur recovery unit over the weekend, while Marathon’s Galveston Bay refinery tried to regain the lead in regulatory filings for the year with another hiccup on an FCC unit reported Friday. The other frequent flier on the TCEQ filings, P66’s Borger refinery also has work being done on an FCC unit today, just a couple of weeks after that same unit was supposed to complete repairs.

The EIA this morning highlighted the closure of one of New England’s oldest power plants. The Mystic generating facility in Charlestown MA was nearly 80 years old, and had struggled for years to be profitable as it was reliant on LNG imports to operate, since the region still hasn’t figured out how to use the huge resources just a few hundred miles to the west to take care of its energy needs.

Click here to download a PDF of today's TACenergy Market Talk.