16 Refineries That Account For Roughly 22% Of The Country’s Total Capacity, Have Reported Upsets Or Unit Shutdowns This Week

Market TalkWednesday, Jan 17 2024
Pivotal Week For Price Action

Energy futures are selling off to start Wednesday’s session after another rally attempt came up short on Tuesday. Numerous refinery issues across the country don’t seem to be enough to convince the bulls to stick around for long, suggesting long term demand fears are outweighing short term supply concerns. 

Yesterday’s whipsaw action seems tied in large part to new of a fire at the P66 Bayway refinery in New Jersey, which is the largest facility on the East Coast.  While the fire was confirmed, the company said it only impacted non-operational equipment, suggesting production wasn’t affected, and prices quickly declined following that news.    

At least 16 refineries that account for roughly 22% of the country’s total capacity, have reported upsets or unit shutdowns this week, most due to the winter weather, although how long those facilities will need to recover remains unclear. The most serious so far appear to be the Suncor refinery outside Denver shutting down completely due to a loss of power and Total’s Pt Arthur refinery that’s indicating it will experience flaring for the next 10 days as it works to restore normal operations. We won’t know until next Wednesday’s DOE report how much actual refining output was impacted by these upsets but based on the relative lack of reaction in cash markets, it appears the damage will not come close to what we experienced in 2021. See the table below of the top 10 refinery upset events of the past 25 years.

Part of the pullback in diesel prices this week can be blamed on a sharp drop in natural gas prices – despite surging heating demand and numerous supply disruptions this week – as the forward outlook for the US and Europe suggests that the record inventory heading into the winter aren’t being threatened by recent events and a warmer outlook ahead will weigh heavily on prices. 

OPEC continues to be bullish on global oil demand, estimating healthy growth in both 2024 and 2025 in its latest monthly oil market outlook. The report does acknowledge that new oil supply from the US, Canada and Guyana will likely keep a lid on the demand for OPEC’s production the next two years, despite China and India both importing record amounts of oil.  The cartel’s output increased slightly in December as increases in Nigeria primarily and Iraq offset small declines from Iran and Saudi Arabia. The report all but shrugged off events in the Red Sea, noting that tanker rates actually ticked lower in December, despite the “uncertainties along key routes which were seen adding upward pressure to rates”. OPEC also noted the sharp drop in US refining margins in December as ample supplies in the Atlantic basin continued to apply pressure on the distillate cracks that have been the key to 2 years of great performance for many refiners.   

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Market Talk Update 1.17.2024

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Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkThursday, Feb 22 2024

RBOB And ULSD Futures Down Around 2.5 Cents After A Mixed Performance Wednesday

Refined products are leading the energy complex lower to start Thursday’s trading with both RBOB and ULSD futures down around 2.5 cents after a mixed performance Wednesday.

The API reported another large build in crude oil inventories last week, with inventories up more than 7 million barrels while gasoline inventories increased by 415,000 barrels and diesel stocks dropped by 2.9 million. The crude oil build was no doubt aided once again by the shutdown of BP’s Whiting refinery that takes nearly ½ million barrels/day of oil demand out of the market. That facility is said to be ramping up operations this week, while full run rates aren’t expected again until March. The DOE’s weekly report will be out at 11am eastern this morning.

Too much or not enough? Tuesday there were reports that the KM pipeline system in California was forced to shut down two-line segments and cut batches in a third due to a lack of storage capacity as heavy rains have sapped demand in the region. Wednesday there were new reports that some products ran out of renewable diesel because of those pipeline delays, bringing back memories of the early COVID lockdown days when an excess of gasoline caused numerous outages of diesel.

The Panama Canal Authority has announced $8.5 billion in sustainability investments planned for the next 5 years. Most of those funds are aimed at sustainability efforts like modernizing equipment and installing solar panels, while around $2 billion is intended for a better water management system to combat the challenges they’ve faced with lower water levels restricting transit by 50% or more in the past year. More importantly in the near term, forecasts for the end of the El Nino pattern that contributed to a record drought, and the beginning of a La Nina pattern that tends to bring more rain to the region are expected to help improve water levels starting this summer.

The bad news is that La Nina pattern, coupled with historically warm water temperature has Accuweather forecasters sounding “Alarm Bells” over a “supercharged” hurricane season this year. Other years with a similar La Nina were 2005 which produced Katrina, Rita and Wilma and 2020 when we ran out of names, and the gulf Coast was repeatedly pummeled but markets didn’t react much due to the COVID demand slump. Perhaps most concerning for the refining industry is that unlike the past couple of years when Florida had the bullseye, the Texas coast is forecast to be at higher risk this year.

RIN prices continued their slide Wednesday morning, trading down to 38 cents/RIN before finally finding a bid that pushed values back to the 41-42 cent range by the end of the day.

The huge slide in RIN values showed up as a benefit in Suncor’s Q4 earnings report this morning, as the Renewable Volume Obligation for the company dropped to $4.75/barrel vs $8.55/barrel in Q4 of 2022. Based on the continued drop so far in 2024, expect that obligation to be nearly cut in half again. Suncor continued the trend of pretty much every other refiner this quarter, showing a dramatic drop in margins from the record-setting levels in 2022, but unlike a few of its counterparts over the past week was able to maintain positive earnings. The company noted an increase in refining runs after recovering from the Christmas Eve blizzard in 2022 that took down its Denver facility for months but did not mention any of the environmental challenges that facility is facing.

Valero’s McKee refinery reported a flaring event Wednesday that impacted multiple unites and lasted almost 24 hours. Meanwhile, Total reported more flaring at its Pt Arthur facility as that plant continues to struggle through restart after being knocked offline by the January deep freeze.

Speaking of which, the US Chemical Safety board released an update on its investigation into the fire at Marathon’s Martinez CA renewable diesel plant last November, noting how the complications of start -up leave refineries of all types vulnerable.

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Pivotal Week For Price Action
Market TalkWednesday, Feb 21 2024

It’s A Mixed Start For Energy Markets To Start Wednesday’s Session After A Heavy Round Of Selling Tuesday

It’s a mixed start for energy markets to start Wednesday’s session after a heavy round of selling Tuesday. RBOB gasoline futures are clinging to modest gains in the early going while the rest of the complex is moving lower.  

WTI is pulling back for a 2nd day after reaching a 3.5 month high just shy of $80. The pullback pushes prompt values back below the 200-day moving average, reducing the likelihood of a breakout to the upside near term.

ULSD values are down nearly 10 cents for the week and are down more than 26 cents from the high trade set February 9th. That pullback leaves ULSD in neutral territory and could act as a headwind for gasoline prices that still seem poised to at least attempt a typical spring rally that adds roughly 20-30% from winter values.

RIN prices continue their slide this week, with D6 and D4 values reaching new 4-year lows around $.41/RIN Tuesday, which is down just slightly from the $1.62/RIN they were going for a year ago.

HF Sinclair reported a loss for Q4 this morning, with its refining and renewables segments each losing roughly $75 million for the quarter. The change from a year ago in the refining segment is a harsh reminder of the cyclical nature of the business as earnings dropped more than $800 million year on year, with inventory cost adjustments accounting for roughly ¼ of that decline.   

While it wasn’t mentioned in the press release, HFS has the most direct exposure to New Mexico’s recent approval of a clean fuel standard that will start in 2026. That law will no doubt help the company’s struggling Renewables assets in the state but will also create extra costs for their traditional refining operations.

The EIA this morning noted that conditions in the Panama Canal improved slightly in January, allowing Gulf Coast exports to Asia, primarily of Propane and ethane, to increase. While transit capacity is still far below levels we saw before the drought reduced operations in the canal, any improvement offers welcome relief to shippers as they can avoid going the long-way around to avoid the violence in the Red Sea.

France’s navy didn’t waste any time getting into the Red Sea action, shooting down a pair of Houthi Drones less than a day after joining the EU’s official mission to assist in clearing the shipping lanes. It’s not yet clear whether this marks the first official military victory by the French since Napoleon. 

Reminder that the weekly inventory reports are delayed a day due to the holiday Monday.

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