Entire Pipeline System Operational Again
Colonial pipeline initiated a full restart Wednesday afternoon, and Thursday confirmed that its entire pipeline system was operational again and all markets were receiving product. The pipeline is running 5.5 days behind on average. After numerous reports guessing that Colonial did not pay the hacker’s a ransom, new reports Thursday said they did, and that the ransom was relatively low because the hackers realized they’d outkicked their coverage on this deal.
It will take another week or two to put the physical supply disruption that started a week ago today in the rear view mirror, but the futures market seems to have already moved on to other things after giving back all of the price gains it had accumulated since the shutdown during Thursday’s trading.
While most of the focus this week has been on the East Coast, the real price action has been in the West Coast, as basis values have been hammered lower, bringing spot differentials for gasoline in LA to their lowest levels in a year. Rising gasoline production in Southern California may deserve some of the credit for the move, but inventories remain near the low end of the seasonal ranges, so it doesn’t appear to be the whole story.
The Mississippi river is to U.S. grain products as the Colonial pipeline is to refined fuels. The temporary shutdown of river traffic to address damage to the I-40 bridge in Memphis, which has stranded hundreds of barges, sparked a limit-down move in several grain contracts Wednesday. Similar to the Colonial shutdown, the impacts of this shutdown are expected to be short lived, but based on what we saw earlier this week that may not be enough to prevent hoarding of bourbon and frosted flakes. The shut down of river traffic could also cause some refined product tightness for the handful of terminals north of Memphis that are fed via barge from origin points south of the closure.
RIN values did see some relatively modest selling pressure as grain and fuel prices were both taking big steps lower, but given the 60 cent increases in the past month, a drop of a few cents hardly moves the needle. Given the dramatic increases, we won’t need to wait long to see if this selling is the start of the end for the upward trend, or if it’s just a speedbump on the move towards $2/RIN.
For the second time in 10 years, an attempt by Platts to buy OPIS has been rejected by regulators that don’t want to allow more pricing index manipulation monopolization by the companies.
Today’s interesting read: Why a review of the TX property tax code over the next 2 years may make refining expansion projects a challenge down the road.
Another change coming to the refining landscape: Soybeans are becoming the new crude oil.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllEnergy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf
Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce.
A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling.
New tactic? Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour.
The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates.
The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.
The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning.
We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.
Click here to download a PDF of today's TACenergy Market Talk.
Week 23 - US DOE Inventory Recap
Energy Prices Retreat, Global Demand Concerns Loom
So much for that rally. Energy prices have given back all of the gains made following Saudi Arabia’s announcement that it would voluntarily withhold another 1 million barrels/day of oil production starting in July. The pullback appears to be rooted in the ongoing concerns over global demand after a soft PMI report for May while markets start to focus on what the FED will do at its FOMC meeting next week.
The lack of follow through to the upside leaves petroleum futures stuck in neutral technical territory, and since the top end of the recent trading range didn’t break, it seems likely we could see another test of the lower end of the range in the near future.
RIN prices have dropped sharply in the past few sessions, with traders apparently not waiting on the EPA’s final RFS ruling – due in a week – to liquidate positions. D6 values dropped to their lowest levels in a year Monday, while D4 values hit a 15-month low. In unrelated news, the DOE’s attempt to turn seaweed into biofuels has run into a whale problem.
Valero reported a process leak at its Three Rivers TX refinery that lasted a fully 24 hours. That’s the latest in a string of upsets for south Texas refineries over the past month that have kept supplies from San Antonio, Austin and DFW tighter than normal. Citgo Corpus Christi also reported an upset over the weekend at a sulfur recovery unit. Several Corpus facilities have been reporting issues since widespread power outages knocked all of the local plants offline last month.
Meanwhile, the Marathon Galveston Bay (FKA Texas City) refinery had another issue over the weekend as an oil movement line was found to be leaking underground but does not appear to have impacted refining operations at the facility. Gulf Coast traders don’t seem concerned by any of the latest refinery issues, with basis values holding steady to start the week.
Click here to download a PDF of today's TACenergy Market Talk.