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.
Latest Posts
Energy Markets Are Ticking Modestly Higher This Morning But Remain Well Off The Highs Set Early Thursday
The Yo-Yo Action In Diesel Continues With Each Day Alternating Between Big Gains And Big Losses So Far This Week
Week 38- US DOE Inventory Recap
It’s A Soft Start For Energy Markets Wednesday As Traders Await The Weekly Inventory Report, And The FOMC
Social Media
News & Views
View AllEnergy Markets Are Ticking Modestly Higher This Morning But Remain Well Off The Highs Set Early Thursday
Energy markets are ticking modestly higher this morning but remain well off the highs set early Thursday following the reports that Russia was temporarily banning most refined product exports.
The law of government intervention and unintended consequences: Russian officials claim the export ban is an effort to promote market stability, and right on cue, its gasoline prices plummeted a not-so-stable 10% following the news.
There’s a saying that bull markets don’t end due to bad news, they end when the market stops rallying on good news. It’s possible that if ULSD futures continue lower after failing to sustain yesterday’s rally, or this morning’s, we could be seeing the end of the most recent bull run. That said, it’s still much too soon to call the top here, particularly with a steepening forward curve leaving prices susceptible to a squeeze, and the winter-demand months still ahead of us. Short term we need to see ULSD hold above $3.30 next week to avoid breaking its weekly trend line.
The sell-off in RIN values picked up steam Thursday, with 2023 D4 and D6 values dropping to the $1.02 range before finally finding a bid later in the session and ending the day around $1.07.
Tropical Storm Ophelia is expected to be named today, before making landfall on the North Carolina coast tomorrow. This isn’t a major storm, and there aren’t any refineries in its path, so it’s unlikely to do much to disrupt supply, but it will dump heavy rain several of the major East Coast markets so it will likely hamper demand through the weekend. The other storm system being tracked by the NHC is now given 90% odds of being named next week, but its predicted path has shifted north as it moves across the Atlantic, which suggests it is more likely to stay out to sea like Nigel did than threaten either the Gulf or East Coasts.
Exxon reported an upset at its Baytown refinery that’s been ongoing for the past 24 hours. It’s still unclear which units are impacted by this event, and whether or not it will have meaningful impacts on output. Total’s Pt Arthur facility also reported an upset yesterday, but that event lasted less than 90 minutes. Like most upsets in the region recently, traders seem to be shrugging off the news with gulf coast basis values not moving much.
Click here to download a PDF of today's TACenergy Market Talk.
The Yo-Yo Action In Diesel Continues With Each Day Alternating Between Big Gains And Big Losses So Far This Week
The yo-yo action in diesel continues with each day alternating between big gains and big losses so far this week. Today’s 11-cent rally is being blamed on reports that Russia is cutting exports of refined products effective immediately. It’s been a while since Russian sabre rattling has driven a noticeable price move in energy futures, after being a common occurrence at the start of the war. Just like tweets from our prior President however, these types of announcements seem to have a diminishing shelf-life, particularly given how the industry has adapted to the change in Russian export flows, so don’t be surprised if the early rally loses steam later today.
The announcement also helped gasoline prices rally 5-cents off of their overnight lows, and cling to modest gains just above a penny in the early going. Before the announcement, RBOB futures were poised for a 5th straight day of losses.
IF the export ban lasts, that would be good news for US refiners that have seen their buyers in south American countries – most notably Brazil – reduce their purchases in favor of discounted barrels from Russia this year.
US refinery runs dropped below year-ago levels for the first time in 6 weeks, with PADDS 1, 2 and 3 all seeing large declines at the start of a busy fall maintenance schedule. Oil inventories continued to decline, despite the drop-in run rates and a big increase in the adjustment factor as oil exports surged back north of 5 million barrels/day. Keep in mind that as recently as 2011 the US only produced 5 million barrels of oil every day, and exports were mostly banned until 2016, so to be sending this many barrels overseas is truly a game changer for the global market.
Chicken or the egg? Cushing OK oil stocks dropped below year-ago levels for the first time since January last week, which may be caused by the return of backwardation incenting shippers to lower inventory levels, the shift to new WTI Midland and Houston contracts as the export market expands. Of course, the low inventory levels are also blamed for causing the backwardation in crude oil prices, and the shift to an export market may keep inventories at the NYMEX hub lower for longer as fewer shippers want to go inland with their barrels.
Refined product inventories remain near the bottom end of their seasonal ranges, with a healthy recovery in demand after last week’s holiday hangover helping keep stocks in check. The biggest mover was a large jump in PADD 5 distillates, which was foreshadowed by the 30 cent drop in basis values the day prior. The big story for gasoline on the week was a surge in exports to the highest level of the year, which is helping keep inventories relatively tight despite the driving season having ended 2 weeks ago.
As expected, the FED held rates yesterday, but the open market committee also included a note that they expected to raise rates one more time this year, which sparked a selloff in equity markets that trickled over into energy prices Wednesday afternoon. The correlation between energy and equities has been non-existent of late, and already this morning we’re seeing products up despite equities pointing lower, so it doesn’t look like the FOMC announcement will have a lasting impact on fuel prices this time around.