How Long Until Power Comes Back On?

How long until the power comes back on? That’s the big question being asked by millions of people across the U.S. and Mexico, and a huge proportion of the energy industry as the remnants of a brutal stretch of winter weather moves East, and the thawing out process begins. In addition to the direct impact, the trickle down effects of the collapse in oil, refined products, natural gas and ethylene production are being felt around the world.
The refining hubs along the Gulf Coast from Corpus Christi to New Orleans have temperatures above freezing this morning, and should stay that way for the next week, except for a few hours tonight. If that thaw allows most plants to resume operations by the weekend, the impact of this chaotic event should be short-lived. Of course, the warm up also means that more drivers are about to hit the road, while terminals and stations that have been closed for a few days may or may not be able to come back online with supply, power and/or intact pipes to meet demand.
If you remember the panic buying in the wake of Hurricane Harvey, it’s not hard to imagine that the next few days could create a demand spike as news of the refinery shutdowns hits the mainstream just in time for people to start leaving their homes again, and could create a preventable panic phenomenon which could create supply shortages all on its own.
The Houston ship channel was able to resume limited operations after the ice blocking shipping lanes started to break up, a most unusual occurrence that may have some Texans reluctant to use the phrase “When Hell Freezes over” ever again.
We did see some heavy selling for about an hour Wednesday morning after a WSJ report that said Saudi Arabia was going to increase its oil output now that prices had recovered. That wave of selling wiped out the early gains for crude and product futures, but was fairly short lived and the march higher picked up later in the morning.
Basis markets continue to show strength for both gasoline and diesel grades across most U.S. spot markets, but those moves are still relatively minor compared to disruptions we’ve witnessed over the past two decades, a testament to the excess capacity in the U.S. and the softer-than-normal demand environment. In addition to stronger spot prices, numerous rack markets stretching from Arizona to Maryland have switched from seeing suppliers having to offer steep discounts to move product during the winter doldrums, to enforcing strict allocations as resupply options become questionable.
The API reported large draws in oil and diesel stocks last week, while gasoline stocks had another large build. The DOE’s weekly report is due out at 10 a.m. central today, and should give some glimpse into the impact on gasoline demand caused by the winter storms that battered the East Coast two weeks ago, that now appear quaint in comparison. Don’t expect the report to move the market much as last Friday’s data doesn’t mean much after almost 1/3 of the country’s refining capacity was forced to cut back this week.
In other non-frozen refinery news this week, Calumet laid out plans to convert part of its Great Falls Montana facility to Renewable Diesel production this week in an SEC filing, joining a long list of refiners looking to jump on the BTC/RIN/LCFS and new Canadian CFS programs that combined can offer more than $4.50/gallon in subsidies for RD production. The company also closed on the sale and leaseback of its Shreveport facility in an effort to save enough cash to survive the weak margin environment that was hammering refineries before the storms hit.
Great Falls Renewable Diesel Opportunity:
We believe Great Falls, which connects western agriculture with West Coast and Canadian clean product markets, presents one of the most compelling opportunities for Renewable Diesel production in North America. We estimate the oversized hydrocracker built in 2016 can be reconfigured to process 10-12,000 BPD renewable feedstock at the lowest capital cost per barrel of any announced industry project. Hydrocracker conversions are typically faster to market, cheaper, and less technically challenging. In addition, the planned configuration could retain 10-12,000 BPD low-cost Canadian crude processing, providing Montana customers with clean energy and our unique specialty asphalt. Future dual train operations are currently estimated to generate $220 to $260 million of Adjusted EBITDA assuming mid-cycle market prices and existing environmental market structure (BTC, RINs, LCFS).
Given strong investor interest in renewables, Calumet expects to utilize third party equity for this unique opportunity, without expending Calumet funds.
Click here to download a PDF of today's TACenergy Market Talk.
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Correlation Confusion Between Oil, Stock, And Currency Markets; US Drops Plan to Replenish SPR
Oil prices are leading a slide lower to end the week after the US government walked back plans to buy oil since it’s dropped below $70, and the latest ripples in the banking crisis push stocks lower and the dollar sharply higher after it touched a 2-month low Thursday.
Even though the correlation between energy prices and stocks or currencies has been weak lately, or even opposite of normal in the case of the dollar, there still seems to be more influence lately as the fear trade has funds flowing back and forth between markets depending on whether or not risk-taking is in style that day.
The US Energy Secretary told congress that the agency won’t be refilling the SPR this year, despite previous pledges by the White House to buy oil when it dropped to $70, since the agency is still working through congressionally mandates sales of oil from the reserve. That news seems to be contributing to the downside in WTI and Brent prices as traders hoping to front run the DOE are now going to have to wait a while longer to do so.
Even though ULSD prices are up 17 cents from the lows set last week, they’re still on the verge of their lowest weekly settlement since January of 2022 should prices end the day near current levels. Given that this week’s recovery rally failed to take out the highs seen in previous weeks, charts continue to look bearish for distillates. Another run at $2.50 looks more likely and a break below that level, when the May contract takes the prompt position in another week, may be a foregone conclusion.
As has been the case for most of March, RBOB look as bad as ULSD on the charts, although that certainly isn’t helping so far today with gasoline futures outpacing the losses in diesel. Unless we see RBOB end the day down a dime or more (it’s down a nickel currently) the weekly trend will still be higher, and the charts will still be giving favor to another push towards $2.80-$3 this spring.
The LA spot market saw a healthy bounce in gasoline basis values Thursday following multiple refinery upsets in the area reported to local regulators. Meanwhile, the California Governors new plan to create an oversight committee to prevent price gouging – a major change from earlier proposals to levy a new tax on oil producers and refiners – passed through the Senate on Thursday. If this new bill is fully passed, it will allow the Governor to appoint that committee himself. A 1,000-page prediction of how that plan will work is available for less than $10 on Amazon.
Click here to download a PDF of today's TACenergy Market Talk.

FOMC Rate Increase Rocks Equity Markets, Energy Futures Unshaken
Stocks didn’t like the FOMC’s move to increase the fed funds rate by 25 points even as it acknowledged that recent banking developments will weigh on economic activity, or the economic projections that showed inflation expectations moving higher than previously forecast and had their worst day in 2 weeks following those announcements.
Even though energy and equity markets have seen their correlation strengthen in March following the banking crisis, the drop in equities did little to slow the recovery rally in energy that stretched to a third day Wednesday. We are seeing a more cautious start this morning with both WTI and ULSD seeing modest losses early, while RBOB continues to push higher for a 4th day.
Gasoline futures are seeming to get a small boost from reports that Monroe was forced to shut an FCC unit at its Trainer PA refinery following a fire Monday. As the charts below show, PADD 1 refinery runs are already at the low end of their seasonal range due to turnaround work at the P66 Bayway facility. Prices to ship products on Colonial have been trading in negative territory lately, and gasoline traders will not want to buy Gulf Coast barrels that have already transitioned to summer grades and bring them to the East Coast that still has a few weeks left to sell winter-grade product, but if this outage is extended, we could see that change next week.
Reports suggest 13% of French fueling stations are tight on supply due to the continuing refinery strikes, with some regions seeing as many as half of their stations out of fuel. The supply disruptions continue to get minimal reaction from global markets with only modest strengthening in time and crack spreads observed so far. A glut of distillates in Asia, as the Eastern hemisphere deals with an influx of Russian exports (aka the opposite problem the Western hemisphere had last year) is contributing to the lack of reaction to the latest supply disruption.
The EIA reported another 2 million barrels/day of crude oil inventory adjustments last week, while strong exports held domestic inventories steady despite another 14 million barrels being found. The agency also released its report on its findings for the rapidly growing adjustment, and its plan to update its weekly survey to help the data make more sense. The report admits that the agency has been inadvertently overstating domestic petroleum consumption, by counting light hydrocarbons and unfinished oils blended into crude as if they’ve been used by consumers, which explains the “record high” total demand even while refined products have seen declines in their figures.
Both gasoline and diesel demand did see healthy increases last week, marking a 2nd straight week of improving numbers for both. Diesel consumption is still at the low end of its seasonal range despite two weeks of growth in the EIA’s estimates, while gasoline is just below its 5-year average for this time of year. Retail prices for both are now approaching $1/gallon less than they were a year ago, which should help give a boost to consumption as we move further into spring.
PADD 5 refinery runs saw another healthy increase last week, and a tick up in imports, both of which might help explain the big declines in gasoline and diesel basis values we’ve seen in the past two weeks. In addition, Wednesday saw a pipeline deal for RD99 executed in the LA market, which will certainly be the first of many as that rapidly increasing supply comes to market. ULSD values did recover from Tuesday’s attempt to liquidate with no liquidity that briefly pushed values down a theoretical 45 cents for the day, although prompt values are still going for 20+ cent discounts to April futures.
The EIA did not yet report Exxon’s 250,000 barrel/day expansion at its Beaumont facility, even though those units have been running for several weeks now. The facility did report an upset in a hydrocracker unit Wednesday, although the impact of that event is still unclear.

Energy Futures Mixed Ahead Of DOE Report And Fed Announcement
Energy futures were calmly waiting on the FED’s 1pm announcement, like many markets around the world, with small and mixed results overnight. Diesel started to make a more meaningful rally attempt as we approach 8am central, moving higher for a 5th straight session, with stronger spreads signaling that refinery disruptions in Europe may finally be having some impact on prices now that most of the banking fears seem to have subsided.
The CME’s Fedwatch tool shows that expectations for a rate increase have risen in the past week, with just 10% betting the FED will hold rates steady today compared to 45% a week ago when the banking crisis was stirring all sorts of fears. It’s worth noting that there’s a 60% probability that the FED will raise rates by 50 points over the next 3 meetings, then 50% odds that rates will end up lower than they are now by the end of the year.
The API estimated gasoline stocks dropped by 1 million barrels last week, while diesel declined by 1.8 million. Crude oil inventories increased by 3.2 million barrels on the week as production held steady near 12.2 million barrels/day. The EIA’s weekly report is due out at its normal time this morning. The agency is still struggling to get a consistent and accurate tally on crude oil inventories due to the growing impact of condensate production on both inventory and export readings. We should also see the largest increase in refinery capacity reported today after Exxon officially brought its new 250mb/day units online at Beaumont TX last week.
France is attempting to requisition refinery workers to get them back on the job and get energy supplies flowing again. After 2 weeks of strikes, the impacts on diesel and crude prices are starting to appear, albeit in much less dramatic fashion than we saw last fall. Both time spreads and crack spreads for diesel have been marching higher over the past week but remain just a fraction of what we saw last year.
The last day of March pipeline trading brought fireworks in the LA spot market Wednesday with a seller of EPA ULSD #2 trapped without any buyers and offering prices all the way down to a 50 cent/gallon discount to futures without a trade ever getting done. Meanwhile multiple bidders for CARB ULSD #2 appeared but no offers at the suddenly huge discounts appeared, leaving the market dislocated, and those making price assessments grasping for straws.
April cycles should bring more liquidity, and many traders will be returning to the office following the annual AFPM (RIP NPRA) conference, so we should get a better feel for reality today. That said, more big swings are possible however as pipeline space to bring barrels east from LA is maxed out and a scramble for CBG gasoline to supply Phoenix taking up much more capacity than normal due to refinery downtime in other markets may leave diesel stuck at its origin points and put downward pressure on spot prices for the next month or so. The good news for consumers on the West Coast is that wholesale diesel prices are now down more than $2/gallon from where they were 6 months ago, which should help alleviate some of the pain they were feeling last year when retail values surged north of $6.
Click here to download a PDF of today's TACenergy Market Talk.