Bullish Headlines Push Energy Prices Higher, Refinery Upsets Persist

Market TalkWednesday, May 24 2023
Pivotal Week For Price Action

Energy markets finally got something to talk about besides the debt debate Tuesday, with a pair of bullish headlines helping to push prices modestly higher once again. The move is relatively tame so far however, as shaky stock markets seem to be keeping optimism for a real rally at bay for now.

The API reported large declines in oil and gasoline inventories last week of more than 6 million barrels each, while distillates declined by 1.8 million barrels. The market jumped immediately following that report as it suggests that the demand doldrums that have plagued the industry for the past 6 months may finally be in the rear-view mirror. The EIA’s weekly report is due out at its normal time this morning and will be delayed next week due to Memorial Day. 

The Saudi oil minister issued another warning to oil speculators who have been shorting prices this year, once again using the threat of “ouching” which seems somewhat comical considering his country’s reputation regarding human rights. The market took those comments to mean that there’s a chance that the de-facto leader of OPEC & Friends would be pushing for more output cuts, and prices rallied following those statements. 

A week after suffering a deadly fire, the 3rd largest refinery in the country had another operational upset Monday, this time in a hydro-treating unit, according to a filing yesterday with the TCEQ. Gulf coast basis values continue to shrug off these reports, with little movement seen over the past week.

The Group 3 market did see a bit of a buying spree Tuesday after a fire broke out at the CVR refinery in Wynnewood OK, injuring two employees. Group 3 values had already been trading at healthy premiums to the Gulf Coast for most of the past 2 months as inventories dropped well below their seasonal range, and this latest tick higher should encourage more barrels to head north, particularly since the draw to ship barrels west is rapidly diminishing. 


Speaking of which, rack prices across the Southwestern US continue their return to earth as local refineries ramp up after spring maintenance, alleviating the severe product shortages, and sending premiums for prompt barrels plummeting 70 cents/gallon or more in the past 2 weeks.

A Reuters article Tuesday suggested the EPA was backpedaling on plans to introduce eRINs to the RFS program and was officially recommending delaying that move in the final ruling for 2023-2025 that’s due in 3 weeks. The more heavily traded D6 (ethanol) and D4 (bio) RIN values were little changed following the news, while the lightly traded D3 (cellulosic) RINs continued to recover after the initial plan sent their values sharply lower this year.

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Market Talk Update 05.24.2023

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Market TalkFriday, Apr 12 2024

Charts Continue To Favor A Push Towards The $3 Mark For Gasoline, While Diesel Prices May Need To Be Dragged Along For The Ride

Energy prices are rallying once again with the expected Iranian attack on Israel over the weekend appearing to be the catalyst for the move. RBOB gasoline futures are leading the way once again, trading up more than a nickel on the day to reach a fresh 7 month high at $2.8280. Charts continue to favor a push towards the $3 mark for gasoline, while diesel prices may need to be dragged along for the ride.

So far it appears that Motiva Pt. Arthur is the only refinery that experienced a noteworthy upset from the storms that swept across the southern half of the country this week. Those storms also delayed the first round of the Masters, which matters more to most traders this week than the refinery upset.

Chevron’s El Segundo refinery in the LA-area reported an unplanned flaring event Thursday, but the big moves once again came from the San Francisco spot market that saw diesel prices rally sharply to 25 cent premiums to futures. The Bay Area now commands the highest prices for spot gasoline and diesel as the conversion of 1 out of the 4 remaining refineries to renewable output is not-surprisingly creating disruptions in the supply chain.

RIN values dropped back below the 50-cent mark, after the recovery rally ran out of steam last week. The EPA is facing numerous legal challenges on the RFS and other policies, and now half of the US states are challenging the agency’s new rule restricting soot emissions. That lack of clarity on what the law actually is or may be is having widespread impacts on environmental credits around the world and makes enforcement of such policies a bit of a joke. Speaking of which, the EPA did just fine a South Carolina company $2.8 million and require that it buy and retire 9 million RINs for improper reporting from 2013-2019. The cost of those RINs now is about 1/3 of what it was this time last year, so slow playing the process definitely appears to have paid off in this case.

The IEA continues to do its best to downplay global demand for petroleum, once again reducing its economic outlook in its Monthly Report even though the EIA and OPEC continue to show growth, and the IEA’s own data shows “Robust” activity in the first quarter of the year. The IEA has come under fire from US lawmakers for changing its priorities from promoting energy security, to becoming a cheerleader for energy transition at the expense of reality.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 11 2024

Diesel Prices Continue To Be The Weak Link In The Energy Chain

Energy prices are ticking modestly lower this morning, despite warnings from the US that an Iranian attack on Israeli interest is “imminent” and reports of weather induced refinery outages, as demand fears seem to be outweighing supply fears temporarily. Diesel prices continue to be the weak link in the energy chain with both the DOE and OPEC reports giving the diesel bears reason to believe lower prices are coming.

The March PPI report showed a lower inflation reading for producers than the Consumer Price Index report, leading to an immediate bounce in equity futures after the big wave of selling we saw yesterday. To put the CPI impact in perspective, a week ago Fed Fund futures were pricing in an 80% chance of an interest rate cut by the FED’s July 31 meeting, and today those odds have shrunk to 40% according to the CME’s FedWatch tool.

OPEC’s monthly oil market report held a steady outlook for economic growth and oil demand from last month’s report, noting the healthy momentum of economic activity in the US. The cartel’s outlook also highlighted significant product stock increases last month that weighed heavily on refining margins, particularly for diesel. Given the US focus on ULSD futures that are deliverable on the East Coast, which continues to have relatively tight supply for diesel, it’s easy to overlook how quickly Asian markets have gotten long on distillates unless of course you’re struggling through the slog of excess supply in numerous west coast markets these days. The OPEC report noted this in a few different ways, including a 33% decline in Chinese product exports as the region simply no longer needs its excess. The cartel’s oil output held steady during March with only small changes among the countries as they hold to their output cut agreements.

If you believe the DOE’s diesel demand estimates, there’s reason to be concerned about domestic consumption after a 2nd straight week of big declines. The current estimate below 3 million barrels/day is something we typically only see the week after Christmas when many businesses shut their doors. We know the DOE’s figures are missing about 5% of total demand due to Renewable Diesel not being included in the weekly stats, and it’s common to see a drop the week after a holiday, but to lose more than a million barrels/day of consumption in just 2 weeks will keep some refiners on edge.

Most PADDs continue to follow their seasonal trends on gasoline with 1 and 2 still in their normal draw down period, while PADD 3 is rebuilding inventories faster than normal following the transition to summer grade products. That rapid influx of inventory in PADD 3 despite robust export activity helps explain the spike in premiums to ship barrels north on Colonial over the past 2 weeks. Gasoline also saw a sizeable drop in its weekly demand estimate, but given the holiday hangover effect, and the fact that it’s in line with the past 2 years, there’s not as much to be concerned about with that figure. While most of the activity happens in PADDs 1-3, the biggest disconnect is coming in PADDs 4 and 5, with gasoline prices in some Colorado markets being sold 50 cents or more below futures, while prices in some California markets are approaching 90 cents above futures.

Severe weather sweeping across the southern US knocked several units offline at Motiva’s Pt Arthur plant (the country’s largest refinery) Wednesday, and it seems likely that Louisiana refineries will see some disruption from the storm that spawned tornadoes close to the Mississippi River refining hub. So far cash markets haven’t reacted much, but they’ll probably need more time to see what damage may have occurred.

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

Pivotal Week For Price Action