Damage To Plants Exceeding Expectations

Market TalkWednesday, Feb 24 2021
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Gasoline prices touched fresh 18 month highs overnight, and are holding on to gains in the early going.  Diesel prices are also ticking higher, but are lagging the strength in gasoline, even as the fundamentals for diesel look stronger than gasoline near term. 

Tuesday’s session was highlighted by a heavy wave of selling in the early going that proved short-lived and gave way to gains after an hour or so. U.S. stock indices also staged a large intra-day rally after heavy morning selling, thanks in part to some calming words from the FED Chair who was testifying before the Senate banking committee. While the correlation between stocks and energy price moves daily remains fairly strong (near 80% for the S&P 500 and WTI and ULSD contracts) the timing was mismatched as energy contracts rallied early and equities later in the day, that suggests petroleum prices are still being driven primarily by refinery news this week.

While significant progress is being made in restarting shut down plants across the country, several plants are discovering that restarts will take a month or so due to damage exceeding original expectations. 

While refined product supplies in general are tight across Texas and some adjoining markets, it looks like diesel is the bigger concern for outages in the short term. We’ve already seen spot to rack price spreads for diesel rally to their widest levels in more than a year this week, and a supply outage at the terminal in Odessa, TX was reported Tuesday evening. Complicating tight supplies, diesel demand across the U.S., based on EIA calculations, has been above average for this time of year, as economic recovery and some shift in consumption patterns (think delivery trucks) combine to offset the negative impacts of COVID. 

The diesel strength is not just limited to the Gulf Coast. Group 3 ULSD basis differentials reached a three year high yesterday, even as demand in the region slumped dramatically due to the cold snap last week, and the neighboring Chicago market is seeing similar gains. With the refineries in KS and OK that were forced to shut units due to that storm all restarting this week, and the Explorer pipeline operating normally, it seems the price rally is due to barrels being diverted to other markets across the south, rather than moving north to the Midwest, which in turn forces buyers to pay up in order to find replacement barrels. 

The API reported a large draw in diesel stocks last week, even as gasoline and crude stocks saw small builds. The EIA report this morning is expected to show some wild numbers as the refinery and oil production shutdowns will be showing up in the numbers for the first time.

HollyFrontier released their 4th quarter earnings this morning, reporting a loss of $117 million for the quarter due largely to "weak demand for gasoline and diesel coupled with compressed crude differentials.” The company did highlight its balance sheet strength and “ambitious” capital and turnaround plans as demand recovers.   

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Pivotal Week For Price Action
Market TalkThursday, Mar 28 2024

Energy Markets Are Ticking Modestly Higher Heading Into The Easter Weekend With Crude Oil Prices Leading The Way Up About $1.25/Barrel Early Thursday Morning

Energy markets are ticking modestly higher heading into the Easter Weekend with crude oil prices leading the way up about $1.25/barrel early Thursday morning, while gasoline prices are up around 2.5 cents and ULSD futures are about a penny.

Today is the last trading day for April HO and RBOB futures, an unusually early expiration due to the month ending on a holiday weekend. None of the pricing agencies will be active tomorrow since the NYMEX and ICE contracts are completely shut, so most rack prices published tonight will carry through Monday.

Gasoline inventories broke from tradition and snapped a 7 week decline as Gulf Coast supplies increased, more than offsetting the declines in PADDs 1, 2 and 5. With gulf coast refiners returning from maintenance and cranking out summer grade gasoline, the race is now officially on to move their excess through the rest of the country before the terminal and retail deadlines in the next two months. While PADD 3 run rates recover, PADD 2 is expected to see rates decline in the coming weeks with 2 Chicago-area refineries scheduled for planned maintenance, just a couple of weeks after BP returned from 7 weeks of unplanned repairs.

Although terminal supplies appear to be ample around the Baltimore area, we have seen linespace values for shipping gasoline on Colonial tick higher in the wake of the tragic bridge collapse as some traders seem to be making a small bet that the lack of supplemental barge resupply may keep inventories tight until the barge traffic can move once again. The only notable threat to refined product supplies is from ethanol barge traffic which will need to be replaced by truck and rail options, but so far that doesn’t seem to be impacting availability at the rack. Colonial did announce that they would delay the closure of its underutilized Baltimore north line segment that was scheduled for April 1 to May 1 out of an “abundance of caution”.

Ethanol inventories reached a 1-year high last week as output continues to hold above the seasonal range as ethanol distillers seem to be betting that expanded use of E15 blends will be enough to offset sluggish gasoline demand. A Bloomberg article this morning also highlights why soybeans are beginning to displace corn in the subsidized food to fuel race.

Flint Hills reported a Tuesday fire at its Corpus Christi West facility Wednesday, although it’s unclear if that event will have a material impact on output after an FCC unit was “stabilized” during the fire. While that facility isn’t connected to Colonial, and thus doesn’t tend to have an impact on USGC spot pricing, it is a key supplier to the San Antonio, Austin and DFW markets, so any downtime may be felt at those racks.

Meanwhile, P66 reported ongoing flaring at its Borger TX refinery due to an unknown cause. That facility narrowly avoided the worst wildfires in state history a few weeks ago but is one of the frequent fliers on the TCEQ program with upsets fairly common in recent years.

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
Pivotal Week For Price Action
Market TalkWednesday, Mar 27 2024

Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

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