Estimated Drop In Fuel Demand Contributes To Inventory Gains

Refined products are attempting another rally to start Thursday’s session after a wave of selling Wednesday wiped out a large portion of the gains made earlier in the week. It’s not exactly clear what’s stirred up refined products in the early going as both gasoline and diesel prices are outpacing gains in crude oil, but the timing of the rally coincides with reports that the U.S. and Chinese presidents had a phone call this morning, which may be leading to optimism that the latest tit for tat in the trade war may soon be taken back.

Oil prices seem to be getting some support overnight after Saudi Arabia announced price cuts to Asian buyers that were less than expected following the OPEC output increase announcements. In addition, there are reports that Chinese buying of Iranian barrels continues to be dampened by actual enforcement of sanctions, which seems to be lending the Saudis a hand.

The market started Wednesday on a soft note after 2 days of buying to start the week, and the selling picked up steam following the weekly DOE report that showed the largest inventory builds for gasoline and diesel since the January demand doldrums. Big drops in the DOE’s estimate for demand contributed to the inventory gains, which was easily explained by the holiday hangover effect on consumption. More surprising was the big increase in refinery runs of more than 4% on the week, with all 5 PADDs once again seeing increases as plants returning from maintenance more than offset several hiccups across the country.

Perhaps most impressive in the refinery runs, which are now near their highest levels of the past 5 years, is that they’re reaching these levels despite the full shutdown of the 260mb/day Lyondell Houston Refinery and the partial shutdown of PBF’s Martinez facility, proving once again how the industry can stretch its production when margins improve as they had in recent weeks prior to being pushed sharply lower to start June.

A report on the cause of the Martinez refinery fire in February suggests that California’s rules requiring union labor are partially to blame as those contractors don’t have proper training on refining turnarounds. That facility is still only partially operating following the fire and isn’t expected to return to full rates until the end of the year.

The EIA highlighted the big drop in Renewable diesel and biodiesel production in Q1, showing that RD output dropped nearly 25% from Q4 of last year, while biodiesel production was down nearly 40% year on year. The loss of the Blenders Tax Credit an uncertainty about the new CFPC (45Z) are the common reasons cited for the big drop in output, but the DOE is forecasting that RD production will recover and actually be higher in 2025 than 2024, while biodiesel production won’t come back nearly as fast, if it comes back at all.

Houston we have a problem: Enterprise Products announced Wednesday that they’d been denied requests to export 3 cargoes with 2.2 million barrels of ethane to China, apparently due to national security concerns and the latest escalation in the trade wars. Ethane, Butane, Propane and Propylene exports have surged in recent years, with most exports heading to Asia, helping solidify the USGC as the world’s hub for “other” petroleum liquids, and helping US producers deal with the excessive amount of petroleum liquid that’s coming along with oil and natural gas production. While the change in export policy won’t directly impact refined products, it does have the potential of further slowing some exploration if the byproduct liquids lose their demand, at least until the latest TACO moment reverses this policy.

Flint Hills reported a brief upset at its Corpus Christi West refinery Wednesday after spent catalyst was accidentally released from an FCC unit. No word on whether the unit was forced to slow rates, but it’s unlikely to impact USGC basis values since the Corpus refinery cluster isn’t hooked up to the Colonial/Plantation/Explorer lines.