Trade Optimism While Energy Prices Continue To Rally

The recovery rally in energy prices continues Friday after a big Thursday rally. RBOB gasoline futures are up a dime for the week, but have rallied 16 cents off of Monday’s low trade. ULSD futures are up 8 cents for the week and have bounced nearly 15 cents after reaching a 4-year low Monday morning.

While oil prices have also had a solid week after a hitting 4 year lows, the run in products has pushed crack spreads to their highest levels in 14 months, which is certainly welcome news for refiners who suffered a brutal 6 month stretch, that is assuming they’re still operating of course.

Trade optimism continues to grab most of the headlines for the risk-on rally the past two days. Adding to the bullish sentiment Thursday was the latest round of sanctions on buyers of Iranian crude oil, with a third Chinese refinery a port operator and a half dozen “shadow fleet” ships targeted this time. The timing is noteworthy as the U.S. and China are set to begin formal negotiations on their trade war this weekend.

Bad to worse: West Coast basis values had already been racing higher this week following the latest refinery upsets with Valero Benicia catching fire and Chevron El Segundo reportedly forced to shut its smaller crude unit and adjacent operations. Thursday saw reports of unplanned flaring at 2 LA-area refineries with Marathon Carson reporting an upset in the morning and P66 Wilmington filing a flaring report in the afternoon meaning that half of the facilities in the area are dealing with some sort of unplanned upset. While the cause and duration of both events is unknown, it certainly seemed to help continue the upward momentum with spot markets left bid at the recent highs and the next offers holding some 20-40 cents above those levels.

Anywhere else in the country a 60-120 cent/gallon price premium would bring a flood of long haul supply to take advantage of the arbitrage, but due to the state’s unique specs and numerous environmental programs (and the Jones Act) the options to bring re-supply from neighboring states is severely limited, and is one big reason why a recent academic study is suggesting retail prices in the state may top $8/gallon next year. See charts below and study attached.

Flint Hills reported an upset in an FCC unit at its Corpus Christi West refinery Thursday morning, but it appears that release of spent catalyst won’t have much impact on their operations as the emissions lasted just an hour.