Refined Product Futures Drop Despite Refinery Run Slowdown

Diesel prices were trying to lead the energy complex lower again to start Thursday’s trading, with gasoline and crude prices somewhat reluctant participants in the modest slide after staging a solid comeback in Wednesday’s session.

The DOE reported a huge build of more than 16 million barrels of crude oil Wednesday, which added to the selling pressure that had started earlier in the morning. Roughly 10 million barrels of the increase can be accounted for by increases in imports and decreases in exports, along with a large drop in refinery runs as plants start a busy spring maintenance schedule. The increase puts total commercial oil inventories above the seasonal 5 year range for this time of year, but factoring in the SPR, those inventories are more than 200 million barrels lower than a year ago.

Diesel was the only category to see an inventory decline on the week, so it was a little surprising to see ULSD leading the move lower in prices again, and ending the day with heavy losses even though gasoline prices staged a strong rally to end the day in positive figures.  The catch is that PADD 1 saw a build of 2.3 million barrels (6.7%) on the week as the ongoing warm weather has crushed demand for heating oil. Then again PADD 1 gasoline stocks saw a 3 million barrel build last week, which certainly doesn’t help explain the rally in RBOB to end the day.

Perhaps the biggest story of the week was that all PADDs 1-4 all saw declines in refinery output, and the net total for the US was a 2.5% drop in refinery runs for the week. It’s been reported for months that the US was scheduled to have much busier than normal refinery maintenance heading into the spring since so many facilities deferred work last year to capture record margins, and now it appears we’re there. While many markets around the country have returned to a state of calm, the rapid drop in output threatens to make things interesting again if demand starts cranking up again as spring approaches. So far this year we’ve seen demand for both gasoline and diesel stay well below both last year’s levels and their 5 year averages, which some see as a sign of the much-feared recession being upon us, while others dismiss as simply a sign of numerous winter storms that disrupted transportation without the cold needed to increase heating demand. 

PBF announced a JV partnership with Italian energy major Eni for its renewable diesel facility (which Europeans refer to as Hydrotreated Vegetable Oil) located at its refinery in Chalmette LA. Eni is putting up more than $880 million in capital to the facility, which is expected to produce 20,000 barrels/day of RD aka HVO later in 2023, along with new feedstock sourcing options outside of the US (Sicilian Olive Oil perhaps?). The facility will now be referred to as Saint Bernard Renewables (SBR)

Last year German utility Uniper had to be bailed out due to the spike in energy prices across Europe, and now has announced it is selling its refinery in the UAE to meet part of the terms of that bailout agreement.  Adding insult to injury, natural gas prices have dropped so much recently due to a warm winter that many suppliers are now facing a glut of supply that may costs billions to liquidate. 

Flint Hills reported a 2nd issue this week at its Corpus Christi refinery to TX regulators. This time a gas oil leak was detected inside the dike area surrounding a tank. No word if this leak could be related to the issue over the weekend that caused fuel to be found in a storm water drain, or if any production units were impacted for the facility that is a key supplier to the San Antonio, Austin and DFW markets.

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