FED Acknowledges Higher Levels Of Inflation 

Market TalkThursday, Jun 17 2021
Pivotal Week For Price Action

Oil & equity prices are pulling back from Multi-year highs, after the FED (finally?) acknowledged higher levels of inflation and suggested it would start tightening its monetary policy earlier than previously thought. The moves in both asset classes has been relatively minor compared to some of the huge FED-induced swings we’ve seen in prior years, likely because despite that more hawkish tone, the earliest interest rate increases are still expected to come in 2023, and no timeline was given for reducing their asset purchases.

RIN values have dropped around 70 cents (30-35% depending on the type/vintage) in just 4 trading sessions since reports that the President was considering relief for refiners from the RFS. Wednesday a group of democratic members of congress urged the EPA not to allow that relief since their constituents can make money turning marginal farmland into 198 proof grain alcohol that we can put in our cars even though several studies suggest those ethanol policies are worse for the environment than gasoline. Any action from the EPA is expected to come after the Supreme Court rules on the small refinery waivers to the RFS, which could happen any day now.  So far this morning RINs have found a bid a penny or two higher than where they left off Wednesday night, so the bleeding seems to have stopped at least temporarily.

There’s a good chance the storm system churning in the gulf will be named Claudette by the weekend, with heavy rain expected to start reaching refining country tomorrow. Forecasts suggest that wind shear and dry air will prevent this system from becoming a hurricane before it reaches land, and it’s been 35 years since a hurricane hit the Gulf Coast in June, but we’re all about breaking precedents recently, so don’t expect that bit of history to mean much.

Getting back to normal: Yesterday’s DOE report showed numerous data points from total petroleum demand, to refinery runs getting back into their typical seasonal ranges, even if not quite yet back to pre-pandemic levels. PADD 1 inventories are back towards the top end of their seasonal ranges, 5 weeks after dropped off a cliff when Colonial pipeline was shut down. Increased imports show how the world is ready and able to jump in to help alleviate tight supplies as long as the market will pay them to do so. 

Who needs Keystone? PADD 2 refinery runs spiked last week to their highest levels in nearly 2 years. The lack of a Keystone pipeline means less competition for crude coming from Canada, giving those plants an economic advantage on their inputs, while they’ll struggle at certain times of the year to find a home for their output.

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

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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.

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

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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