16 Refineries That Account For Roughly 22% Of The Country’s Total Capacity, Have Reported Upsets Or Unit Shutdowns This Week
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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News & Views
View AllEnergy Futures Are Caught Up In Headline Tug-O-War This Morning
Energy futures are caught up in headline tug-o-war this morning with Canadian oil production concerns and a positive US GDP report trying to push prices higher while sinking Chinese demand worries and Gaza ceasefire hopes are applying downward pressure. The latter two seem to be favored more so far this morning with WTI and Brent crude oil futures down ~45 cents per barrel, while gasoline and diesel prices are down about half a cent and two cents, respectively.
No news is good news? Chicago gasoline prices dropped nearly 30 cents yesterday, despite there not being any update on Exxon’s Joliet refinery after further damage was discovered Wednesday. Its tough to say if traders have realized the supply situation isn’t as bad as originally thought or if this historically volatile market is just being itself (aka ‘Chicago being Chicago’).
The rain isn’t letting up along the Texas Gulf Coast today and is forecasted to carry on through the weekend. While much of the greater Houston area is under flood watch, only two refineries are within the (more serious) flood warning area: Marathon’s Galveston Bay and Valero’s Texas City refineries. However, notification that more work is needed at Phillip’s 66 Borger refinery (up in the panhandle) is the only filing we’ve seen come through the TECQ, so far.
Premiums over the tariff on Colonial’s Line 1 (aka linespace value) returned to zero yesterday, and actually traded in the negatives, after its extended run of positive values atypical of this time of year. Line 1’s counterpart, Line 2, which carries distillates from Houston to Greensboro NC, has traded at a discount so far this year, due to the healthy, if not over-, supply of diesel along the eastern seaboard.
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WTI And Brent Crude Oil Futures Are Trading ~$1.50 Per Barrel Lower In Pre-Market Trading
The across-the-board drawdown in national energy stockpiles, as reported by the Department of Energy yesterday, stoked bullish sentiment Wednesday and prompt month gasoline, diesel, and crude oil futures published gains on the day. Those gains are being given back this morning.
The surprise rate cut by the People’s Bank of China is being blamed for the selling we are seeing in energy markets this morning. While the interest rate drop in both short- and medium-term loans won’t likely affect energy prices outright, the concern lies in the overall economic health of the world’s second largest economy and crude oil consumer. Prompt month WTI and Brent crude oil futures are trading ~$1.50 per barrel lower in pre-market trading, gasoline and diesel are following suit, shaving off .0400-.0450 per gallon.
Chicagoland RBOB has maintained its 60-cent premium over New York prices through this morning and shows no sign of coming down any time soon. Quite the opposite in fact: the storm damage, which knocked Exxon Mobil’s Joliet refinery offline on 7/15, seems to be more extensive than initially thought, potentially extending the repair time and pushing back the expected return date.
There are three main refineries that feed the Chicago market, the impact from one of them shutting down abruptly can be seen in the charts derived from aforementioned data published by the DOE. Refinery throughput in PADD 2 dropped 183,000 barrels per day, driving gasoline stockpiles in the area down to a new 5-year seasonal low.
While it seems all is quiet on the Atlantic front (for now), America’s Refineryland is forecasted to receive non-stop rain and thunderstorms for the next four days. While it may not be as dramatic as a hurricane, flooding and power outages can shut down refineries, and cities for that matter, all the same, as we learned from Beryl.