After 2 Days Of Heavy Selling Knocked Energy Prices Down By Almost 10% To Start The Year
After 2 days of heavy selling knocked energy prices down by almost 10% to start the year, refined products started rallying late Tuesday after reports that Colonial pipeline was forced to shut its pipeline segment that delivers into the New York Harbor.
Colonial’s line 3, which is the mainline running from Greensboro NC to Linden New Jersey, carries 880,000 barrels/day of refined products, (which is equivalent to roughly 7% of the daily US demand) was reportedly shut down for unplanned maintenance.
The duration of this shutdown will be critical to determining its impact, while the location of the maintenance near the NC/VA border, and far away from the major metro areas that it transits, should aid in the speed of recovery.
If the pipe comes back online by Saturday as they’ve tentatively scheduled, this will not be a big deal. Just as we saw with the recent spate of refinery outages that were largely shrugged off, if you’re going to have a major supply disruption, this is the time of year to do it as demand is typically at its lowest levels, even without the parade of winter storms sweeping coast to coast that’s keeping many drivers off the road.
That said, there simply is no way to replace the main supply conduit in the region, so if the downtime lingers, it will become a huge deal very quickly. Losing that supply outlet will create excess supply in spots upstream of the leak, potentially causing some Gulf Coast refiners to cut runs if they lack other outlets, and rapidly intensifying shortages downstream, in yet another painful reminder of how vulnerable this refinery-less region is to disruptions in the transportation portion of the supply chain.
The API reported a build of 3.3 million barrels of crude oil last week, along with an increase of 1.2 million barrels of gasoline while distillates declined by 2.4 million barrels. The EIA’s report is due out at the holiday-delayed timing of 10am central today, and is sure to have lots of noise in the numbers due to the widespread refinery issues and year-end positioning of inventories.
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View AllRefined Products Are Moving Lower For A 2nd Day After Coming Under Heavy Selling Pressure In Wednesday’s Session
Refined products are moving lower for a 2nd day after coming under heavy selling pressure in Wednesday’s session. Rapidly increasing refinery runs and sluggish diesel demand both seemed to weigh heavily on product prices, while crude oil is still benefitting from the disruption of exports from Iraq. Prices remain range-bound, so expect more choppy back and forth action in the weeks ahead.
US oil inventories saw a large decline last week, despite another 13-million barrels of oil being found in the weekly adjustment figure, as imports dropped to a 2-year low, and refinery runs cranked up in most regions as many facilities return from spring maintenance.
The refining utilization percentage jumped to its highest level of the year but remains overstated since the new 250,000 barrels/day of output from Exxon’s Beaumont facility still isn’t being counted in the official capacity figures. If you’re shocked that the government report could have such a glaring omission, then you haven’t been paying attention to the Crude Adjustment figure this year, and the artificially inflated petroleum demand estimates that have come with it.
Speaking of which, we’re now just a couple of months away from WTI Midland crude oil being included in the Dated Brent index, and given the uncertainty in the US over what should be classified as oil vs condensate, expect some confusion once those barrels start being included in the international benchmark as well.
Diesel demand continues to hover near the lowest levels we’ve seen for the first quarter in the past 20+ years, dropping sharply again last week after 2 straight weeks of increases had some markets hoping that the worst was behind us. Now that we’re moving out of the heating season, we’ll soon get more clarity on how on road and industrial demand is holding up on its own in the weekly figures that have been heavily influenced by the winter that wasn’t across large parts of the country.
Speaking of which, the EIA offered another mea culpa of sorts Wednesday by comparing its October Winter Fuels outlook to the current reality, which shows a huge reduction in heating demand vs expectations just 6-months ago.
It’s not just domestic consumption of diesel that’s under pressure, exports have fallen below their 5-year average as buyers in South America are buying more Russian barrels, and European nations are getting more from new facilities in the Middle East.
Take a look at the spike in PADD 5 gasoline imports last week to get a feel for how the region may soon be forced to adjust to rapidly increasing refining capacity in Asia, while domestic facilities come under pressure.
Crude Oil Prices Are Trying To Lead Another Rally In Energy Futures This Morning
Crude oil prices are trying to lead another rally in energy futures this morning, while ULSD prices are resisting the pull higher. Stocks are pointed higher in the early going as no news is seen as good news in the banking crisis.
WTI prices have rallied by $10/barrel in the past 7 trading days, even with a $5 pullback last Thursday and Friday. The recovery puts WTI back in the top half of its March trading range but there’s still another $7 to go before the highs of the month are threatened.
Yesterday’s API report seems to be aiding the continued strength in crude, with a 6 million barrel inventory decline estimated by the industry group last week. That report also showed a decline of 5.9 million barrels of gasoline which is consistent with the spring pattern of drawdowns as we move through the RVP transition, while distillates saw a build of 550k barrels. The DOE’s weekly report is due out at its normal time this morning.
Diesel prices seems to be reacting both to the small build in inventories – which is yet another data point of the weak demand so far this year for distillates – and on the back of crumbling natural gas prices that settled at their lowest levels in 2.5 years yesterday and fell below $2/million BTU this morning.
While diesel futures are soft, rack markets across the Southwestern US remain unusually tight, with spreads vs spot markets approaching $1/gallon in several cases as local refiners go through maintenance and pipeline capacity for resupply remains limited. The tightest supply in the region however remains the Phoenix CBG boutique gasoline grade which is going for $1.20/gallon over spots as several of the few refineries that can make that product are having to perform maintenance at the same time.
French refinery strikes continue for a 4th week and are estimated to be keeping close to 1 million barrels/day of fuel production offline, which is roughly 90% of French capacity and almost 1% of total global capacity. That disruption is having numerous ripple effects on crude oil markets in the Atlantic basin, while the impact on refined product supplies and prices remains much more contained than it was when this happened just 5 months ago.
Click here to download a PDF of today's TACenergy Market Talk.