Refined Products Are Treading Water This Morning As The Market Continues To Cool Its Heels After Last Week’s Big Rally

Market TalkWednesday, Feb 14 2024
Pivotal Week For Price Action

Refined products are treading water this morning as the market continues to cool its heels after last week’s big rally. Gasoline prices are hovering near breakeven after 2 straight up days, while ULSD futures are seeing modest declines in what would be a 3rd straight day of losses to follow 5 straight days of increases.

It’s not just refined products that are seeing a diverging path this week: WTI is trading higher for an 8th consecutive session, while natural gas is trading lower for an 8th day, reaching a 3.5 year low in the process. In some ways, natural gas prices are being pushed lower by crude, since the record high production of oil in the US is also coming with an excess production of gas, while record warm temperatures this winter put a big damper on demand. 

The weakness in natural gas markets also seems to be spilling into ULSD prices, particularly after the Nor’easter that slammed the East Coast yesterday moved through the area quickly and didn’t lead to any gas curtailments that would cause diesel demand to spike near term.  That lack of heating demand also helps explain the sharp pullback in diesel spreads this week after a sharp rally when the first forecasts for that storm came out last week.

Natural gas is also featuring in the latest Middle Eastern violence after one of Iran’s major gas pipeline systems was targeted in a series of “terrorist” attacks.

OPEC continues to sound bullish in its latest monthly oil market report, noting that while global growth remains below pre-pandemic levels, economic activity surpassed expectations last year and they predict that trend to continue as inflation eases in the world’s major economies. 

The report also noted a huge divergence in clean product tanker rates depending on which side of the Red Sea you’re on, with East of Suez rates surging 45%, while West of Suez dropped by 10%. Sour crude grades were also increasing due to the Red Sea shipping disruptions reducing the options for Asian Pacific buyers.

OPEC’s oil output dropped by 350mb/day during January with large decreases from Libya, Kuwait and Iraq offsetting small increases from Saudi Arabia and the UAE.

The API reported healthy draws in refined product inventories last week with gasoline stocks down 7 million barrels and diesel down 4 million barrels. Crude oil stocks rose by more than 8 million barrels on the week, with roughly half of that gain accounted for by the shutdown of BP’s Whiting refinery that’s reached almost 2 weeks. The EIA’s weekly status report is due out at its normal time this morning and will be delayed by President’s day next week. 

Chevron and PBF dropped lawsuits and agreed to comply with San Francisco Bay-Area regulators on a plan to reduce particulate pollution starting in July 2026. Expectations are that both facilities will install wet gas scrubbers to comply with the ruling, rather than convert their operations as 2 other Bay-Area refineries have done recently.

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Market Talk Update 02.14.2024

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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.

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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.

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Pivotal Week For Price Action