After Another Big Rally Wednesday, Energy Prices Are Seeing A Quiet Start To Trading Thursday

Market TalkThursday, Mar 24 2022
Pivotal Week For Price Action

After another big rally Wednesday, energy prices are seeing a quiet start to trading Thursday, with little news so far to give us the expected 20 cent swings we’ve become accustomed to in March. There are multiple summits taking place in Europe this week that will decide the next steps in the efforts to end the war in Ukraine, and the (relative) lack of price movement so far today seems to be the market taking a wait and see approach to those meetings.

Yesterday’s DOE report continued to provide evidence that there simply is not a good short term solution to the global supply crunch, but also that the US is in a much better position than most other countries these days.

Gulf Coast refiners are doing their part to make up for a lack of refined products in other markets, increasing run rates for a 5th straight week, and surpassing 8.7 million barrels/day for just the third time since the COVID lockdowns forced plants to reduce rates, and helped drive the biggest decrease in refining capacity in 40 years. How many would like to ask for a do-over on shuttering those plants in light of recent events? The other notable phenomenon is that PADD 3 run rates surpassed 55% of total US throughput rates as the Gulf Coast states continue to grab market share from those that have declared war on their refiners and are now paying a huge price as a result.   

Speaking of which, take a look at the huge drop in diesel imports over the past two weeks in the charts below to see a good graphical representation of the scramble for importers to find distillates on cargo ships to replace barrels coming from Russia, regardless of their original destination. The US still produces 10-15% more diesel than it consumes every day, but domestic markets have to compete with international buyers in the coastal markets, and for the Gulf Coast refiners, it often is more cost effective to send diesel to parts of Europe and South America than it is to some parts of the US thanks to the Jones Act and CARB regulations. 

Damage assessments are underway at the Black Sea Oil port that transports roughly 1% of global supply after Russian officials claimed it was shuttered after a storm. It’s hard to know (even before they invaded Ukraine) what’s real and what’s propaganda, but there are signs that the pipeline feeding the port is still operational.

An EIA note this morning predicts that US renewable diesel production will surpass biodiesel production this year, as new plants come online, and the feedstock wars are won by RD as it is not only a drop-in replacement for ULSD, but also commands more environmental subsidies. The report also shows that production growth for both RD and Bio is expected to slow dramatically after the race to convert during the aforementioned COVID refinery shuttering, and the combined total of the two products will only reach 8% of total distillate output in 2050, vs 6% today.  So much for Net Zero.

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

Market Talk Update 3.24.22

News & Views

View All
Market Talk Updates - Social Header
Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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

Market Talk Updates - Social Header
Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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

Pivotal Week For Price Action