Fuel Prices And Renewable Credits Face Whiplash

Market TalkThursday, Mar 25 2021
Pivotal Week For Price Action

It’s been a busy month worth of trading this week as fuel prices and renewable credits all face a bout of whiplash. Gasoline and diesel contract managed to wipe out Tuesday’s big losses that approached 10 cents in many markets with even larger gains Wednesday, only to start Thursday’s session dropping back 5-6 cents. 

The blockage of the Suez canal got way too much credit for Wednesday’s big price rally, as the issue is expected to be cleared by the weekend, and should not have any long term impacts. If the event was the main driver of the price action during the rally, we would have seen time spreads strengthen, reflecting the short term supply crunch, which just didn’t happen as prices were up big across the forward curve. Want another reason why that probably wasn’t why prices rallied yesterday? The ship is still stuck this morning and prices are down 3%.

The DOE’s weekly report showed that the great refinery recovery continues, but Gulf Coast (PADD 3) runs are still 800mb/day below where they were prior to the polar plunge. Plants in other regions are taking advantage of the disruption, with East & West Coast refiners increasing rates to their highest levels in a year to capitalize on the (recently) rare window to make healthy margins caused by the widespread outages and slow recovery. 

Gasoline imports remain nearly 2X normal levels for this time of year as replacement barrels for those lost from downed refineries are arriving. That phenomenon may help explain some of the strength in RIN pricing over the past month as those imported barrels require purchasing a full slate of RIN codes to comply with the RFS.  

Demand estimates from the DOE were sluggish last week – and certainly didn’t help explain the big price jump following the report – with distillate consumption dropping sharply over the past two weeks while gasoline has stagnated. 

An EIA report this morning highlights the vastly different refining landscape in the U.S. – which for decades has been the world leader in refining – and China, which surpassed U.S. output for most of 2020. 

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

TACenergy MarketTalk 032521

News & Views

View All
Market Talk Updates - Social Header
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.

Market Talk Updates - Social Header
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