It’s A Quiet Start To Trading As The 2nd Quarter Of 2023 Winds Down

Market TalkFriday, Jun 30 2023
Pivotal Week For Price Action

It’s a quiet start to trading as the 2nd quarter of 2023 winds down, with many already looking ahead to a long holiday weekend. While most energy contracts are poised to finish the month higher, they’re still lower than they were at the end of Q1, with plenty of work to be done if the bulls are going to regain control. Diesel futures are down $1.50/gallon from this time last year, while gasoline futures are down more than $1 and the charts continue to send mixed signals for what’s ahead. 

Almost all trading has shifted away from the expiring July RBOB and ULSD contracts, so look to the August figures for direction today if your market hasn’t already rolled.

See the holiday calendar below for a recap of who is and isn’t open to start next week.  Monday will be particularly confusing for rack pricing as the Nymex and OPIS both have normal publishing plans but Argus and Platts will both be closed. 

The East Coast continues to show signs that physical supply is tightening up after a relatively relaxed spring. Colonial line 1 premiums jumped back into positive territory as gasoline values in NYH relative to the Gulf Coast have gained 10 cents/gallon over the past 10 days.  Distillates are seeing strength as well with NYH spots now going for nearly 20 cents/gallon more than the Chicago market and 7 cents above the Gulf Coast.

The West Coast is also seeing strength, with gasoline and diesel basis in California seeing healthy gains this week following multiple refinery upsets. The strength is primarily focused in the LA area, with CARB diesel premiums hitting their highest levels since February yesterday.

The 4th largest refinery in the US continues to struggle, reporting 2 more-unit upsets to regulators Thursday, just 2 days after a chemical leak sparked a shelter in place and less than 2 months after a deadly fire. Gulf Coast basis markets continue to shrug off this news with basis values not making any perceived moves due to those upsets while regional inventories remain at average levels even though exports remain robust.

Ethanol RINs (D6) have recovered the losses they took after the EPA announced it was lowering its de-facto ethanol blending requirements for the next two years, even though outright ethanol prices have dropped by more than 20 cents/gallon in the past 3 days, which are following a sharp drop off in corn and other grain prices as drought fears across the Midwest seem to be coming to an end. D4 RINs are now trading essentially flat to D6 RINs, a far cry from the 20 cent premiums they carried for much of last year, thanks to the rapid influx of new renewable diesel production. Of course, even though the RIN values are the same, the total value for RD production is much higher as each gallon produced generates 1.7 RINs, vs 1.5 for biodiesel and 1 for ethanol.

The EPA announced new rules to prevent PFAS chemicals to enter the marketplace. That new framework could be another nail in the coffin of the beleaguered Suncor refinery near Denver, as a new report notes a spike in PFAS from that facility in May, adding to the comedy of errors experienced by that company over the past year

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Maket Talk Update 06.30.2023

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Pivotal Week For Price Action
Market TalkFriday, Feb 23 2024

The DOE Report Sparked A Solid Rally In Energy Futures Thursday, But That Upward Momentum Proved Short-Lived

The DOE report sparked a solid rally in energy futures Thursday, but that upward momentum proved short-lived as prices gave back those gains overnight, despite US equity markets surging to all-time highs.

The weekly inventory report showed US refiners are struggling to come back online from a busy maintenance season that was further complicated by January’s cold snap and the unexpected shut down at BP Whiting. Refinery utilization held near 80% on the week, which helped pull gasoline inventories lower despite sluggish demand and a surge in imports along the East Coast. Diesel demand showed a big recovery from last week’s ugly estimate, and when you factor in the missing 4-5% that doesn’t show up due to RD not being included in the reports, actual consumption looks much healthier than the report suggests.

Based on reports of restarts at several major refineries this week, we should see those utilization numbers pick up in next week’s report.

The EPA Thursday approved year-round E15 sales in 8 corn-growing states, despite the fact that the extra ethanol blends have been shown more to pollute more in the warm times of the year. The effective date was pushed back a year however in a show of election-year tight rope walking, which the EPA couched as ensuring that the move wouldn’t lead to a spike in fuel prices this summer.

Of course, the law of unintended consequences may soon be at play in a region that tends to be long gasoline supply for large parts of the year. Removing 5% of the gasoline demand could be another nail in some of the smaller/less complex refineries’ coffins, which would of course make fuel supply less secure, which contradicts one of the main arguments for making more 198 proof grain alcohol and selling it as fuel. Ethanol prices meanwhile continue to slump to multi-year lows this week as low corn prices continue to push unusually high production, and the delayed effective date of this ruling won’t help that.

While Nvidia’s chip mania is getting much of the credit for the surge in equity prices this week, there was also good news for many more companies in reports that the SEC was planning to drop its requirements on Scope 3 emissions reporting which is particularly useful since most people still can’t figure out what exactly scope 3 emissions really are.

In today’s segment of you can’t make this stuff up: The case of chivalry gone wrong with the BP/TA acquisition, and a ketchup caddy company caught spoofing electric capacity.

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

Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkThursday, Feb 22 2024

RBOB And ULSD Futures Down Around 2.5 Cents After A Mixed Performance Wednesday

Refined products are leading the energy complex lower to start Thursday’s trading with both RBOB and ULSD futures down around 2.5 cents after a mixed performance Wednesday.

The API reported another large build in crude oil inventories last week, with inventories up more than 7 million barrels while gasoline inventories increased by 415,000 barrels and diesel stocks dropped by 2.9 million. The crude oil build was no doubt aided once again by the shutdown of BP’s Whiting refinery that takes nearly ½ million barrels/day of oil demand out of the market. That facility is said to be ramping up operations this week, while full run rates aren’t expected again until March. The DOE’s weekly report will be out at 11am eastern this morning.

Too much or not enough? Tuesday there were reports that the KM pipeline system in California was forced to shut down two-line segments and cut batches in a third due to a lack of storage capacity as heavy rains have sapped demand in the region. Wednesday there were new reports that some products ran out of renewable diesel because of those pipeline delays, bringing back memories of the early COVID lockdown days when an excess of gasoline caused numerous outages of diesel.

The Panama Canal Authority has announced $8.5 billion in sustainability investments planned for the next 5 years. Most of those funds are aimed at sustainability efforts like modernizing equipment and installing solar panels, while around $2 billion is intended for a better water management system to combat the challenges they’ve faced with lower water levels restricting transit by 50% or more in the past year. More importantly in the near term, forecasts for the end of the El Nino pattern that contributed to a record drought, and the beginning of a La Nina pattern that tends to bring more rain to the region are expected to help improve water levels starting this summer.

The bad news is that La Nina pattern, coupled with historically warm water temperature has Accuweather forecasters sounding “Alarm Bells” over a “supercharged” hurricane season this year. Other years with a similar La Nina were 2005 which produced Katrina, Rita and Wilma and 2020 when we ran out of names, and the gulf Coast was repeatedly pummeled but markets didn’t react much due to the COVID demand slump. Perhaps most concerning for the refining industry is that unlike the past couple of years when Florida had the bullseye, the Texas coast is forecast to be at higher risk this year.

RIN prices continued their slide Wednesday morning, trading down to 38 cents/RIN before finally finding a bid that pushed values back to the 41-42 cent range by the end of the day.

The huge slide in RIN values showed up as a benefit in Suncor’s Q4 earnings report this morning, as the Renewable Volume Obligation for the company dropped to $4.75/barrel vs $8.55/barrel in Q4 of 2022. Based on the continued drop so far in 2024, expect that obligation to be nearly cut in half again. Suncor continued the trend of pretty much every other refiner this quarter, showing a dramatic drop in margins from the record-setting levels in 2022, but unlike a few of its counterparts over the past week was able to maintain positive earnings. The company noted an increase in refining runs after recovering from the Christmas Eve blizzard in 2022 that took down its Denver facility for months but did not mention any of the environmental challenges that facility is facing.

Valero’s McKee refinery reported a flaring event Wednesday that impacted multiple unites and lasted almost 24 hours. Meanwhile, Total reported more flaring at its Pt Arthur facility as that plant continues to struggle through restart after being knocked offline by the January deep freeze.

Speaking of which, the US Chemical Safety board released an update on its investigation into the fire at Marathon’s Martinez CA renewable diesel plant last November, noting how the complications of start -up leave refineries of all types vulnerable.

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