Refined Products Bounce Keeping Prices Well Above Their 6-Week-Old Trend Lines

Refined products are bouncing back this morning after 2 days of selling as a bit of economic optimism appears to be creeping back into the market. The bounce keeps prices well above their 6-week-old trend lines and keeps the bulls in position to push prices substantially higher in the coming weeks and makes the past two days of selling look like nothing more than profit taking to cure an overbought market.

Stocks and energy prices reacted positively to the 4th quarter US GDP estimates this morning that showed the economy continued to expand, albeit at a slower pace than in Q3, and that the consumer continues to be resilient with purchases and savings despite so much consternation about a looming recession.  International travel was noted as a highlight in this report, and could be a major theme this year as China has reopened its doors while many other countries get closer to business as usual and release the pent up demand of 3 years of COVID travel restrictions.

Despite surging exports, light imports, and no more SPR releases, crude oil inventories continue to build in the US as refinery runs continue to be far below planned levels. The recovery from the Christmas blizzard and a handful of other events in the past few weeks continues, but we’re still seeing utilization that’s several percentage points below where it would be otherwise. These lower run rates on top of already low inventory levels would be much more painful if demand wasn’t still very sluggish, and adding another anecdote for the half that think the US economy is already in a recession. 

Then again, it’s also January which is typically the worst demand month of the year, and we’re in the midst of a parade of winter storms sweeping the entire country and keeping many vehicles off the road, so if we do see a normal demand rebound heading into the spring months, supply may get very tight again in short order.

Valero reported another banner quarter in Q4 this morning, and ended the year with net income of $11.8 billion, compared to $1.3 billion in 2021. The company’s refineries operated at 97% during the quarter, which was the highest since 2018 as they, along with all the others that were able, maximized output to try and help alleviate chronic inventory shortages and take advantage of the record margins those shortages bring. The report also noted that the expansion of their newest Diamond Green renewable diesel facility was completed during the quarter, and the coker project at the Port Arthur refinery which will expand capacity is due to be completed in Q2. 

Total reported Wednesday that its refinery outside Houston was knocked offline during Tuesday’s severe weather event.  The report suggests the plants boilers were restarted early Wednesday morning, suggesting that the facility avoided any major damage. That facility is just a couple of miles from the Deer Park refinery that was also knocked offline during the storm and restarted a few hours later. Those are the only two facilities reporting so far, while several others in the region have said their operations remain stable, so it seems we’ve avoided a major disruption from that system.

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