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.   

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

TACenergy MarketTalk 022421

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Market TalkFriday, Apr 19 2024

Gasoline Futures Are Leading The Way Lower This Morning

It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.

Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.

A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.

Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.

Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 18 2024

The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days

The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.

The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.

An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.

Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.

In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.

The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.

Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.

Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.

PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.

Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.

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