Gasoline Prices Recoup Heavy Losses

Market TalkFriday, Aug 6 2021
Pivotal Week For Price Action

Gasoline prices have recouped most of the heavy losses suffered in the front half of the week, but need to extend this two day rally to avoid more downward pressure as charts continue to favor lower prices. The September RBOB contract (RBU) continues to be the standout in the entire complex as we begin the early stages of the fall RVP transition, and summer spec products start to become scarce. ULSD and WTI have also seen nice rebounds off of Wednesday’s lows, but are still pointed for large losses on the week and hinting at more to come.

The relative strength in gasoline prices has pushed crack spreads to 2 year highs, providing some much needed relief to the beleaguered refining industry. On the other hand, RIN values are about $1.50/gallon higher than they were 2 years ago, which offsets a large portion of that improvement in the gross refining margins. Perhaps an even bigger concern for refiners is that the traditional driving season is quickly coming to a close, and with so much uncertainty about what the winter will bring with the various COVID variants, these current values may look lofty in the near future.

For a contrary opinion, See this Reuters article on Chinese fuel demand for a good break down of how gasoline consumption remains on pace to hit a record this year despite the recent increases in COVID cases.

The US president signed an executive order on “Strengthening American Leadership in Clean Cars and Trucks” Thursday. In that order the EPA & Transportation secretaries were told to “…consider beginning work on rules” that would push for 50% of new vehicles to be carbon neutral, and to increase the fuel efficiency of traditional vehicles starting with model year 2027. Note the order wasn’t to begin the work, but to consider beginning the work. Based on that, and Washington’s general inefficiency, it seems more likely that the rules will still be debated in 2027 rather than having them adopted.  

Perhaps the most notable detail (which naturally is overlooked) is that the President also encouraged the agencies to follow California’s lead in adopting these standards, which could mean the continued spread of the LCFS & Cap & Trade programs.

(c) Given the significant expertise and historical leadership demonstrated by the State of California with respect to establishing emissions standards for light-, medium-, and heavy-duty vehicles, the Administrator of the EPA shall coordinate the agency’s activities pursuant to sections 2 through 4 of this order, as appropriate and consistent with applicable law, with the State of California as well as other States that are leading the way in reducing vehicle emissions, including by adopting California’s standards.   

The FERC rejected a request by airlines and cargo plane operators to grant emergency access to Kinder Morgan’s SFPP North line system to get more fuel to Reno, but ordered the parties involved to establish a conference aimed at “resolving current and long-term issues” regarding to that pipeline’s capacity. The order did not require a singing of Kumbaya at the end of the conference.

2 potential storm systems continue to be watched by the NHC, with the 2nd still given 60% odds of developing next week.

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Market Update 8.6.21

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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