Refined Products Are Leading The Energy Complex Lower To Start The New Year

Market TalkTuesday, Jan 3 2023
Pivotal Week For Price Action

Refined products are leading the energy complex lower to start the new year, after a strong finish to a wild 2022. Energy futures start the year in neutral technical territory, with a break above $3.40 for ULSD and $2.50 for RBOB needed to regain their upward momentum. 

Unseasonably warm weather across large parts of the US and Europe are easing heating demand, pushing natural gas and diesel prices lower, while also helping US refineries recover from the Christmas blizzard. We did see gulf coast basis values rally alongside futures last Friday, suggesting that some refiners are being forced to buy product they would have otherwise produced themselves. Despite that bump higher, it still appears that the impact of those disruptions will remain fairly muted as we’re in the worst 2 weeks of the year for consumption, which gives a bit more leeway to the supply network. 

Concerns about a global recession continue to loom over energy and equity markets, with the IMF chief over the weekend suggesting that 1/3 of the world’s economy to contract this year as the US, Europe and China all slow simultaneously.  

The good news is that with fuel prices dropping nearly $2/gallon from their summer highs, and nearly $1/gallon in the past 2 months, the US consumer has some extra money in their pocket to start the new year, which will help minimize the impact of a slowdown. Whether or not these lower prices can be sustained, particularly with the world’s largest oil consumer attempting to reopen its economy for business, is a major question mark for the next few months.

The forward curve charts below show that 2023 will still have backwardation as a major theme that shippers will have to deal with, even though some prompt contracts have slipped into contango as we move through the winter demand doldrums.   

Refiners with operable facilities are starting the year on a strong note with healthy margins owing to the global shortage of distillates, and the recent storm disrupting operations after US facilities proved they could step up production this fall. New refining capacity from Asia and the Middle east will put downward pressure on those crack spreads and create ripple effects in the global market this year, but it’s still unclear how that will shake out given the lack of transportation options caused the Russian splinter effect

Speaking of which, the EIA published a note this morning highlighting how Russia’s invasion of Ukraine has impacted commodity markets of all varieties over the past 10 months. 

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

Market Talk Update 01.03.2023

News & Views

View All
Market Talk Updates - Social Header
Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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

Market Talk Updates - Social Header
Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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

Pivotal Week For Price Action