The Search For Direction Continues In Energy Markets With Diesel Contracts Trying To Lift The Complex Higher

The search for direction continues in energy markets with diesel contracts trying to lift the complex higher, while oil and gasoline prices pull modestly lower to start Tuesday’s trading. Brent Crude settled above $86 for the first time in 2 months Monday, with fresh geopolitical tensions as Iran and Hezbollah seem ready to take a bigger role in the war against Israel getting credit for much of the increase, while we saw money managers jumping back in to their bets on higher crude prices in the past week.

The CFTC’s delayed weekly Commitments of Traders report showed funds were much less bullish on NYMEX contracts than they were their ICE counterparts last week. WTI and RBOB contracts saw a net reduction in length held by money managers while ULSD saw its net short position cut in half.

Citgo reported a snag in restart efforts at its Corpus Christi West refinery that had units offline for maintenance and then faced delays following Tropical Storm Alberto last week. The latest filing of flaring at a tail gas incinerator appears to be minor and shouldn’t prevent the startup efforts from continuing this week. Valero reported an upset at its McKee TX refinery impacting the sulfuric acid vent as they were attempting restart this week.

Updates on the 2 new refineries in the Atlantic basin that are posing a major threat to existing facilities already struggling to turn a profit:

A Reuters article this morning confirms what many have already concluded: Mexico’s Dos Bocas refinery is nowhere near ready to produce finished products, despite so many claims to the contrary by the country’s President. The multi-year delays at that facility are good news for US Gulf Coast refiners in particular who depend on Mexico for roughly 50% of their gasoline exports and 20-30% of their diesel exports. Brazil used to account for the largest share of US diesel exports, and now has turned almost exclusively to Russian supplies, making the demand from Mexico even more important to US refiners than it was just a year or two ago.

Meanwhile, the huge Dangote refinery in Nigeria has been producing some limited amounts of distillates and already having an impact on the product flows in the Atlantic. It seems that all is not well at the facility however as the company’s Vice President accused international oil companies of conspiring against the new facility by preventing it from purchasing crude oil to run the plant. While the Dangote refinery is certainly a threat to several refineries, it could also benefit others as it does not seem ready to produce on-spec ULSD or Gasoline, and is instead sending partially refined products abroad for more complex facilities to process, presumably at advantaged prices, and replacing some of the partially refined oil those facilities were buying from the Russians before the full invasion of Ukraine.

The NHC is tracking a tropical system north of Venezuela that is given 20% odds of being named and heading for the SW Gulf of Mexico next week. The low odds and position of the potential development suggest it won’t be a threat to the oil production and refining zones, but it will be watched for a few more days just in case.

Today’s interesting read: A debate on the pros and cons of Ukraine’s attacks on Russian refineries.

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