Large Plants Shutter After Polar Plunge
It’s a quiet morning in energy markets, after a busy overnight session had petroleum futures on the verge of breaking their four-month-long bullish trend that has nearly doubled the value of some contracts.
Refined products dropped more than three cents overnight, and WTI dropped back below $60, but all three contracts were able to bounce and are trading slightly higher this morning. The overnight sell-off just about closed the chart gap left behind by the transition from winter to summer spec gasoline for the RBOB contract, and ULSD survived its latest test of its bullish trend line, marking the first time since the end of January we’ve seen that weekly trend face a serious test.
The refinery restarts are continuing with some of the largest plants shuttered by the polar plunge coming back online in the past several days. While those restarts are helping alleviate concerns of long term outages, it will still be weeks before we see production return to pre-storm levels, and several reported hiccups are keeping supplies tight across Texas and neighboring states for the time being. The chart below shows the dramatic change in West Texas where diesel supplies went from feast to famine since the cold snap.
Midwestern diesel values continue to spike with Group 3 values reaching their highest levels in more than four years this week as refiners scramble to replace barrels lost due to downtime of their plants, the Explorer pipeline shutting for nearly a week, or the rush to resupply Texas. It’s highly unusual for Group 3 prices to be the most expensive in the country, and is unheard of for February. The only times we’ve seen anything like this is during the fall harvest demand spike. The best cure for high prices is high prices, and we’re already seeing deliveries into the region tick up as shippers capture a rare winter arbitrage, so that price spike may only last another few days.
Things are getting personal in the public argument between refiners CVR and Delek. CVR (fka Coffeyville resources) as a major shareholder in Delek has been taking an activist stance for some time, and now this week publically questioned the CEO of Delek’s compensation package. Not going down without a fight, Delek responded that its performance over the past five years was more than 3X that of CVR and would reply to their request in due course. Does any of this matter to the supply network? Probably not unless CVR gets control of Delek and puts some of its refineries on the chopping block.
The latest in a growing list of refinery unit conversions: Shell announced plans to upgrade its hydrogen plant in Germany to help produce more power-to-liquid aviation fuel. Here’s why oil executives think demand for crude will continue to grow despite the rapidly changing refinery landscape.
Today’s interesting read: Why America needs more mines if its electric dreams are to become reality, and why that’s a huge problem for the “Green” energy movement.
Click here to download a PDF of today's TACenergy Market Talk.
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Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf
Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce.
A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling.
New tactic? Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour.
The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates.
The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.
The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning.
We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.
Click here to download a PDF of today's TACenergy Market Talk.
Week 23 - US DOE Inventory Recap
Energy Prices Retreat, Global Demand Concerns Loom
So much for that rally. Energy prices have given back all of the gains made following Saudi Arabia’s announcement that it would voluntarily withhold another 1 million barrels/day of oil production starting in July. The pullback appears to be rooted in the ongoing concerns over global demand after a soft PMI report for May while markets start to focus on what the FED will do at its FOMC meeting next week.
The lack of follow through to the upside leaves petroleum futures stuck in neutral technical territory, and since the top end of the recent trading range didn’t break, it seems likely we could see another test of the lower end of the range in the near future.
RIN prices have dropped sharply in the past few sessions, with traders apparently not waiting on the EPA’s final RFS ruling – due in a week – to liquidate positions. D6 values dropped to their lowest levels in a year Monday, while D4 values hit a 15-month low. In unrelated news, the DOE’s attempt to turn seaweed into biofuels has run into a whale problem.
Valero reported a process leak at its Three Rivers TX refinery that lasted a fully 24 hours. That’s the latest in a string of upsets for south Texas refineries over the past month that have kept supplies from San Antonio, Austin and DFW tighter than normal. Citgo Corpus Christi also reported an upset over the weekend at a sulfur recovery unit. Several Corpus facilities have been reporting issues since widespread power outages knocked all of the local plants offline last month.
Meanwhile, the Marathon Galveston Bay (FKA Texas City) refinery had another issue over the weekend as an oil movement line was found to be leaking underground but does not appear to have impacted refining operations at the facility. Gulf Coast traders don’t seem concerned by any of the latest refinery issues, with basis values holding steady to start the week.
Click here to download a PDF of today's TACenergy Market Talk.