Energy Prices Attempting Move Lower To Begin Penultimate Day of Trading For 2022
Energy prices are attempting another move lower to begin the penultimate day of trading for 2022. We saw a very similar sell-off happening this time yesterday, only to see a strong rally in the afternoon wipe out those losses. Refinery restarts, weak equity markets and increasing COVID counts in China are all getting credit for the selling over the past couple of days, although it’s unclear what may have prompted yesterday’s buying spree that added 14 cents to diesel prices in just under an hour.
The selling in both futures and cash markets seemed to follow news that the country’s largest refineries along the Gulf Coast were making fast work of restarting units shut by last week’s storm, reducing the chances of significant supply disruptions from that downtime.
While many facilities weathered the storm well, there’s at least one long-term casualty so far. Suncor issued a press release Wednesday saying its Commerce City refinery – the only one in the state of Colorado - would shut completely, most likely for several months, to allow for damage assessments and repairs following multiple fires since the plant was knocked offline last week. The release says full operations are expected by late Q1 2023. The loss of a refinery in the Denver area will max out pipeline resupply options from the Midwest, TX Panhandle and from Wyoming. It would also be a great time to have a refinery 100 miles to the north in Cheyenne, but that facility was converted to RD production 2 years ago when oil refiners were desperate to stay afloat. Given the region isn’t directly tied into any major spot markets, don’t expect this shutdown to have an influence on prices beyond the cities directly impacted.
Remarkably, that shutdown announcement may not have been the worst news of the day for the facility, as the EPA announced it was investigating the state of Colorado for discriminatory air permitting policies, which could make restarting the Suncor facility much more challenging. You may recall the EPA recently made it all but impossible for the St. Croix refinery FKA Hovensa to restart after multiple operational upsets, and it’s not too far-fetched to think the Suncor plant could wind up with a similar fate, particularly given its horrible operating track record over the past couple of years.
The API reported small inventory builds for refined products last week of 510,000 barrels of gasoline and 38,000 barrels of distillates, while oil inventories fell by 1.3 million barrels. Given that products still increased despite the pre-Christmas demand rush, and oil only declined slightly despite the Keystone shutdown and importers avoiding taking oil into Texas to avoid year-end taxes, those figures seem pretty bearish and are likely contributing to the latest sell-off attempt. The DOE/EIA’s weekly report is due out at 10 am central today. Don’t expect to see any impact of the refinery shutdowns in this report as the data was collected for the week ending last Friday, right when the storm’s impact was being felt.
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Energy Markets Rally Again Thursday After A Choppy Wednesday Session
Energy markets are trying to rally again Thursday after a choppy Wednesday session. RBOB gasoline futures are leading the push higher, on pace for a 3rd consecutive day of gains after finding a temporary floor Tuesday and have added 12 cents from those lows.
Equity markets are pointing sharply lower after a weak Q1 GDP estimate which seems to have contributed to a pullback in product prices over the past few minutes, but don’t be surprised if the “bad news is good news” low interest rate junkies start jumping in later on.
The DOE’s weekly report showed sluggish demand for gasoline and diesel, but inventory levels in most markets continue to follow their typical seasonal trends. Refinery runs held fairly steady last week with crude inputs down slightly but total gross throughputs up slightly as most facilities are now back online from a busy spring maintenance season and geared up for peak demand this summer.
Propane and propylene exports spiked to a record high north of 2.3 million barrels/day last week, which demonstrates both the US’s growing influence on global product markets, and the steady shift towards “other” products besides traditional gasoline and diesel in the level of importance for refiners.
The EIA acknowledged this morning that its weak diesel consumption estimates reflected the switch to Renewable Diesel on the West Coast, although they did not provide any timeline for when that data will be included in the weekly survey. The agency acknowledged that more than 4% of the total US consumption is now a combination of RD and Biodiesel, and that number is expected to continue to grow this year. This morning’s note also suggested that weak manufacturing activity was to blame for the sluggish diesel demand across the US, while other reports suggest the freight recession continued through Q1 of this year, which is also contributing to the big shift from tight diesel markets to oversupplied in several regions.
Valero kicked off the Q1 earnings releases for refiners with solid net income of $1.2 billion that’s a far cry from the spectacular earnings north of $3 billion in the first quarter of 2023. The refining sector made $1.7 billion, down from $4.1 billion last year. That is a pattern that should be expected from other refiners as well as the industry returns to a more normal market after 2 unbelievable years. You wouldn’t guess it by looking at stock prices for refiners though, as they continue to trade near record highs despite the more modest earnings.
Another pattern we’re likely to see continue with other refiners is that Renewable earnings were down, despite a big increase in production as lower subsidies like RINs and LCFS credit values sting producers that rely on those to compete with traditional products. Valero’s SAF conversion project at its Diamond Green joint venture is progressing ahead of schedule and will give the company optionality to flip between RD and SAF depending on how the economics of those two products shakes out this year. Valero also shows part of why refiners continue to disappear in California, with operating expenses for its West Coast segment nearly 2X that of the other regions it operates in.
Week 16 - US DOE Inventory Recap
Energy Markets Trading Quietly In The Red As Ethanol Prices Rally To Five-Month High
Energy markets are trading quietly in the red to start Wednesday’s session after a healthy bounce Tuesday afternoon suggested the Israel-Iran-linked liquidation had finally run its course.
There are reports of more Ukrainian strikes on Russian energy assets overnight, but the sources are sketchy so far, and the market doesn’t seem to be reacting as if this is legitimate news.
Ethanol prices have rallied to a 5-month high this week as corn and other grain prices have rallied after the latest crop progress update highlighted risks to farmers this year, lower grain export expectations from Ukraine, and the approval of E15 blends this summer despite the fact it pollutes more. The rally in grain and renewables prices has also helped RIN values find a bid after it looked like they were about to test their 4-year lows last week.
The API reported small changes in refined product inventories last week, with gasoline stocks down about 600,000, while distillates were up 724,000. Crude oil inventories increased by 3.2 million barrels according to the industry-group estimates. The DOE’s weekly report is due out at its normal time this morning.
Total reported another upset at its Port Arthur refinery that’s been a frequent flier on the TCEQ alerts since the January deep freeze knocked it offline and damaged multiple operating units. This latest upset seems minor as the un-named unit impacted was returned to normal operations in under an hour. Gulf Coast basis markets have shrugged off most reports of refinery upsets this year as the region remains well supplied, and it’s unlikely we’ll see any impact from this news.
California conversely reacted in a big way to reports of an upset at Chevron’s El Segundo refinery outside of LA, with CARBOB basis values jumping by more than a dime. Energy News Today continued to show its value by reporting the upset before the flaring notice was even reported to area regulators, proving once again it’s ahead of the curve on refinery-related events. Another industry news outlet meanwhile struggled just to remember where the country’s largest diesel seller is located.
Click here to download a PDF of today's TACenergy Market Talk