Diesel Supplies Decline For Seventh Straight Week

Market TalkThursday, May 27 2021
Pivotal Week For Price Action

The choppy back and forth action continues with a Wednesday’s price rally largely wiped out in the early going Thursday. The pattern seems to be that if prices are going up, we’ll chalk it up to stronger demand, if they’re down, it will be blamed on a possible new deal with Iran.

While the market seems to be going nowhere, it’s been a huge week on the climate front with two potentially landmark events both happening Wednesday.

Dutch court ordered Shell (aka Royal Dutch Shell) to cut its carbon emissions by 45% by 2030 in a ruling announced Wednesday. The ruling didn’t say how Shell was supposed to accomplish that, but apparently the company believes fire-selling its refineries is an option. After selling off its Anacortes and Deer Park facilities in the past few weeks, the company announced Wednesday it would also be selling its Mobile AL refinery to specialty refiner Vertex. 

Exxon Mobil meanwhile saw at least two, and possibly three, board of directors seats won by an activist investor group pushing for the company to rethink its climate change strategy. What does that mean? Maybe not much in terms of operational changes as the fund controls only .02% of the company’s shares, and the 2-3 board seats won’t be enough to create any majorities. That said, it’s a clear victory in terms of changing sentiment from investors, and quite possibly the loudest moment yet in the crescendo of the great energy transition.

Betting on a bailout? A Reuters report Wednesday said that Delta’s refinery arm has stopped buying RINs in a bet that the white house will offer relief as those credits have surged more than $1/RIN so far this year. We did see PES try a similar strategy a few years ago, and get its RIN obligation wiped out in Bankruptcy court, which seemed to work until they blew up their refinery. RINs were under selling pressure before this report moving 2-3 cents lower on the day, but rallied following its release of this report and wiped out most of those early losses. 

In fundamental news from the weekly DOE Report: Diesel supplies declined for a seventh straight week. Considering we’re in the traditional seasonal doldrums for diesel demand, and yet days of supply is below 30, you might start being concerned with securing your diesel supply this fall if you haven’t already.

The DOE’s gasoline demand estimate reached a new post-COVID high, and actually surpassed the levels we saw this week in 2019. It is possible to write off that jump to restocking efforts in the wholesale fuel arena following the great Colonial Panic buying spree the prior week.  

The PADD 1 & PADD 3 gasoline inventory charts didn’t change much last week, proving that fixing the near-week-long shutdown of Colonial will take much longer than one week. Outages are dwindling in the South East, but returning to normal supply will still take another few weeks. 

While refiners are still operating below capacity, that reality of the time it takes to bring new supply to the consumer is a good warning as both gasoline and diesel days of supply are now back to average levels and demand is continued to climb this summer. The rash of refinery closures and conversions over the past month has left the U.S. refined product market with less of a capacity cushion than it’s had in a decade, and more regional shortages & price spikes could be coming as a result.

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

TACenergy MarketTalk Update 05721.

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Pivotal Week For Price Action
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