Energy Markets Rally: Bulls Charge Ahead Amidst Ceasefire Rejection and Strong US Earnings

Market TalkThursday, Feb 8 2024
Pivotal Week For Price Action

Energy markets are rallying for a 4th straight day, with refined products once again leading the charge after some bullish inventory data Wednesday. Adding to the bullish fervor this week are reports that a Gaza cease fire plan has been rejected, and strong earnings from US businesses have the S&P 500 within a few ticks of reaching the 5,000 mark.

RBOB futures came within 3 points of reaching a 3-month high overnight, and charts continue to favor a strong move higher as we move towards spring. The DOE’s weekly report added a fundamental argument for the spring rally, with lower refinery runs and a big increase in estimated gasoline demand last week. The official diesel demand estimate remains at the low end of the seasonal range as it has been for most of the past 2 years, but when you factor in the missing consumption that’s going to Renewable Diesel, the true value looks much closer to the 5-year seasonal average.

Gulf Coast refinery runs dropped for a 3rd straight week and were down more than 1.5 million barrels/day over that stretch. We should see run rates start to increase next week as multiple large refineries are starting to return from their maintenance activity this week, most notably Motiva’s Port Arthur facility that’s had its largest crude unit down on planned turnaround for a month. 

Mid Continent refiners are seeing the opposite pattern, as run rates surged back above their 5-year range last week as facilities seem eager to maximize output before their Canadian crude discount shrinks later in the year. PADD 2 run rates are expected to drop sharply in next week’s report following the unplanned downtime at BP Whiting, the largest refinery in the region, with this week’s restart efforts appearing to be mediocre at best, driving a healthy rally in basis values.

The difference in refinery runs between the Midwest and Gulf Coast regions remains painfully obvious in the inventory charts, with PADD 2 stocks holding at the top end of their seasonal range, while PADD 3 stocks have plunged to the low end of theirs. The challenge with this of course is that PADD 2 facilities are largely land-locked and can’t rely on exports to ease their glut and may instead end up relying on refinery run cuts, planned or otherwise to balance the equation.

US Crude oil producers only needed two weeks to recover from the January freeze, with total output returning to an all-time high (for any country in the world) of 13.3 million barrels last week. The EIA still appears to be figuring out its accounting system however, as the Crude Adjustment factor dropped to a negative 1.6 million barrels last week, suggesting 11 million barrels of oil just vanished from their figures. If you’re hoping for lower prices, you may note that despite 11 million barrels of oil going missing last week, the official estimate of inventory still increased.

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Market Update 2.8.24

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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.

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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