Profit-Taking Tuesday: Refined Products Back Away From Two-Month Highs

Market TalkTuesday, Jan 24 2023
Pivotal Week For Price Action

Refined products are seeing a modest pullback to start Tuesday’s trading, after setting fresh 2 month highs overnight. The move so far looks like a round of profit taking after a strong 3 week rally, and perhaps some unwinding of long spread positions now that the French protests don’t appear to be having a sustained impact on refinery operations. 

Refining margins have seen big gains ever since prices bottomed out in early December, and Gulf Coast 5/3/2 crack spreads (which imply a ratio of 3 gallons of gasoline and 2 gallons of diesel produced for each 5 gallons of crude processed) once again approaching $1/gallon.  The other piece of good news for refiners is that these margins are happening while natural gas prices are trading at their lowest levels in 2 years, so their input costs are substantially lower, and should help drive another bumper quarter for those who are operating.

Of course, it’s those refineries that aren’t operating that are a big contributor to the increase in margins, with numerous facilities still struggling to resume full operations since the Christmas Blizzard impacted almost every plant east of the Rockies.  The Suncor facility outside Denver remains the largest casualty of that storm and continues to have ripple effects for at least 8 surrounding states. That plant is by no means the only one still struggling with the fallout of unplanned shutdowns, which is why US refinery throughput went from above average to below in the past month.

In addition to the weather-related issues, the normal day to day risks of operating refineries are still apparent as at least three facilities have been forced to shut units in the past few days due to operational upsets and fires. The PBF refinery near New Orleans that caught fire this weekend is reported by ENT to need at least a month to repair the affected units, while the Marathon facility near LA also has multiple units offline following a fire Monday. The P66 refinery in San Francisco, which is scheduled to convert to controversial RD production next year, was also said to have units knocked offline which helped bay area basis values jump on Monday.

Natural gas prices are seeing a rebound off of their multi-year lows this week as colder weather is forecast for much of the country over the coming 2 weeks, and the Freeport LNG export facility is reporting it’s ready to resume shipments once it receives regulatory approval. 

The much warmer-than-expected winter weather through most of December and January has been a literal life saver for European nations that didn’t have an answer for how they’d heat their homes this winter and has alleviated much of the concerns about yet another distillate supply crunch along the East Coast. The next two weeks will be particularly critical if a cold snap does hit, just in time for the Russian embargo on distillates to begin. 

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Market Talk Update 01.24.2023

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Market TalkWednesday, Jul 17 2024

Energy Markets Are Trying To Find A Price Floor After Gasoline And Crude Oil Staged A Healthy Bounce To Minimize The Heavy Losses

Energy markets are trying to find a price floor after gasoline and crude oil staged a healthy bounce to minimize the heavy losses we saw early in Tuesday’s session. WTI is leading the move higher early Wednesday, up nearly $.90/barrel in the early going, while RBOB prices are up just under a penny.

Diesel continues to look like the weak link in the energy chain both technically and fundamentally. Tuesday the API reported a 4.9 million barrel build in diesel stocks, while gasoline inventories were only up 365,000 barrels, and crude oil stocks declined by more than 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning and it’s likely we’ll see a reduction in oil output and PADD 3 refining runs thanks to shut ins ahead of Hurricane Beryl, but otherwise the storm appears to be a relative non-issue with only 1 notable refining hiccup, that wasn’t even as bad as a midwestern Thunderstorm.

Chicago basis values rallied Tuesday after reports that Exxon had shut down the 250mb/day Joliet refinery following severe storms that knocked out power to the area Sunday. RBOB differentials surged nearly 9 cents on the day, while diesel diffs jumped more than a nickel. With 3 large refineries in close proximity, the Chicago cash market is notoriously volatile if any of those facilities has an upset. Back in May there was a one-day spike in gasoline basis of more than 50 cents/gallon after Joliet had an operating upset so don’t be surprised if there are bigger swings this week if the facility doesn’t come back online quickly.

Moving in the opposite direction, California basis values are heading the opposite direction with the transition to August scheduling pressuring CARBOB differentials in LA and San Francisco to their biggest discounts to prompt RBOB futures in more than 18 months. Gasoline imports into PADD 5 have held well above average levels over the past 2 months, which has more than offset the loss of the P66 Rodeo refinery’s output after it completed its conversion to RD production, in another sign of how growing refining capacity in China and other Asian countries may become more influential to the US. California regulators may also pat themselves on the back that their new plans to force refineries to report their gross profit monthly, in addition to the rules requiring all bulk trades in the state be reported must be driving the lower gasoline differentials, assuming they figure out what a basis differential is.

Meanwhile, California’s Carbon Allowance values have tumbled to their lowest levels in a year after a CARB presentation last week suggested the agency would be delaying long-anticipated tightening of the Cap and Trade program until 2026.

Click here to download a PDF of today's TACenergy Market Talk.

Pivotal Week For Price Action
Market TalkTuesday, Jul 16 2024

The Sell-Off In Energy Markets Continues, With Refined Products Reaching Their Lowest Levels In A Month Early In Tuesday’s Session

The sell-off in energy markets continues, with refined products reaching their lowest levels in a month early in Tuesday’s session. Reports of slowing growth in China, the world’s largest oil purchaser, is getting much of the credit for the slide in prices so far this week, although that doesn’t do much to explain why refined products are outpacing the drop in crude.

ULSD futures are leading the early move lower, trading down a nickel on the day, and marking a 19 cent drop since July 4th. There’s not much in the way of technical support for ULSD, so don’t be surprised if this sell-off continues to pick up steam.

With today’s slide, RBOB futures are down 17 cents from where they were trading on July 4th, and are just a couple of cents from testing their 200-day moving average. Should that support break, it looks like there’s a good chance to test the June lows around $2.29.

Physical markets are not offering any strength to the futures market with all 6 of the major cash markets for diesel across the US trading at a discount to ULSD futures, while only 1 gasoline market is trading at a premium to RBOB futures. That combination of weakness in futures and cash markets is going to be troubling for refiners who are seeing margins reduce during what is traditionally a strong time of year.

The EIA highlighted the energy trade between the US and Mexico in a report Monday, showing that despite so many claims of energy independence from Mexican officials, the actual amount of refined fuels and natural gas bought from the US continues to increase. That’s good news for many US refiners who have become more dependent on Mexican purchases to find a home for their output.

Click here to download a PDF of today's TACenergy Market Talk.