Refined Products Bounce Keeping Prices Well Above Their 6-Week-Old Trend Lines
Refined products are bouncing back this morning after 2 days of selling as a bit of economic optimism appears to be creeping back into the market. The bounce keeps prices well above their 6-week-old trend lines and keeps the bulls in position to push prices substantially higher in the coming weeks and makes the past two days of selling look like nothing more than profit taking to cure an overbought market.
Stocks and energy prices reacted positively to the 4th quarter US GDP estimates this morning that showed the economy continued to expand, albeit at a slower pace than in Q3, and that the consumer continues to be resilient with purchases and savings despite so much consternation about a looming recession. International travel was noted as a highlight in this report, and could be a major theme this year as China has reopened its doors while many other countries get closer to business as usual and release the pent up demand of 3 years of COVID travel restrictions.
Despite surging exports, light imports, and no more SPR releases, crude oil inventories continue to build in the US as refinery runs continue to be far below planned levels. The recovery from the Christmas blizzard and a handful of other events in the past few weeks continues, but we’re still seeing utilization that’s several percentage points below where it would be otherwise. These lower run rates on top of already low inventory levels would be much more painful if demand wasn’t still very sluggish, and adding another anecdote for the half that think the US economy is already in a recession.
Then again, it’s also January which is typically the worst demand month of the year, and we’re in the midst of a parade of winter storms sweeping the entire country and keeping many vehicles off the road, so if we do see a normal demand rebound heading into the spring months, supply may get very tight again in short order.
Valero reported another banner quarter in Q4 this morning, and ended the year with net income of $11.8 billion, compared to $1.3 billion in 2021. The company’s refineries operated at 97% during the quarter, which was the highest since 2018 as they, along with all the others that were able, maximized output to try and help alleviate chronic inventory shortages and take advantage of the record margins those shortages bring. The report also noted that the expansion of their newest Diamond Green renewable diesel facility was completed during the quarter, and the coker project at the Port Arthur refinery which will expand capacity is due to be completed in Q2.
Total reported Wednesday that its refinery outside Houston was knocked offline during Tuesday’s severe weather event. The report suggests the plants boilers were restarted early Wednesday morning, suggesting that the facility avoided any major damage. That facility is just a couple of miles from the Deer Park refinery that was also knocked offline during the storm and restarted a few hours later. Those are the only two facilities reporting so far, while several others in the region have said their operations remain stable, so it seems we’ve avoided a major disruption from that system.
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Refined Products Are Moving Lower For A 2nd Day After Coming Under Heavy Selling Pressure In Wednesday’s Session
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View AllRefined Products Are Moving Lower For A 2nd Day After Coming Under Heavy Selling Pressure In Wednesday’s Session
Refined products are moving lower for a 2nd day after coming under heavy selling pressure in Wednesday’s session. Rapidly increasing refinery runs and sluggish diesel demand both seemed to weigh heavily on product prices, while crude oil is still benefitting from the disruption of exports from Iraq. Prices remain range-bound, so expect more choppy back and forth action in the weeks ahead.
US oil inventories saw a large decline last week, despite another 13-million barrels of oil being found in the weekly adjustment figure, as imports dropped to a 2-year low, and refinery runs cranked up in most regions as many facilities return from spring maintenance.
The refining utilization percentage jumped to its highest level of the year but remains overstated since the new 250,000 barrels/day of output from Exxon’s Beaumont facility still isn’t being counted in the official capacity figures. If you’re shocked that the government report could have such a glaring omission, then you haven’t been paying attention to the Crude Adjustment figure this year, and the artificially inflated petroleum demand estimates that have come with it.
Speaking of which, we’re now just a couple of months away from WTI Midland crude oil being included in the Dated Brent index, and given the uncertainty in the US over what should be classified as oil vs condensate, expect some confusion once those barrels start being included in the international benchmark as well.
Diesel demand continues to hover near the lowest levels we’ve seen for the first quarter in the past 20+ years, dropping sharply again last week after 2 straight weeks of increases had some markets hoping that the worst was behind us. Now that we’re moving out of the heating season, we’ll soon get more clarity on how on road and industrial demand is holding up on its own in the weekly figures that have been heavily influenced by the winter that wasn’t across large parts of the country.
Speaking of which, the EIA offered another mea culpa of sorts Wednesday by comparing its October Winter Fuels outlook to the current reality, which shows a huge reduction in heating demand vs expectations just 6-months ago.
It’s not just domestic consumption of diesel that’s under pressure, exports have fallen below their 5-year average as buyers in South America are buying more Russian barrels, and European nations are getting more from new facilities in the Middle East.
Take a look at the spike in PADD 5 gasoline imports last week to get a feel for how the region may soon be forced to adjust to rapidly increasing refining capacity in Asia, while domestic facilities come under pressure.
Crude Oil Prices Are Trying To Lead Another Rally In Energy Futures This Morning
Crude oil prices are trying to lead another rally in energy futures this morning, while ULSD prices are resisting the pull higher. Stocks are pointed higher in the early going as no news is seen as good news in the banking crisis.
WTI prices have rallied by $10/barrel in the past 7 trading days, even with a $5 pullback last Thursday and Friday. The recovery puts WTI back in the top half of its March trading range but there’s still another $7 to go before the highs of the month are threatened.
Yesterday’s API report seems to be aiding the continued strength in crude, with a 6 million barrel inventory decline estimated by the industry group last week. That report also showed a decline of 5.9 million barrels of gasoline which is consistent with the spring pattern of drawdowns as we move through the RVP transition, while distillates saw a build of 550k barrels. The DOE’s weekly report is due out at its normal time this morning.
Diesel prices seems to be reacting both to the small build in inventories – which is yet another data point of the weak demand so far this year for distillates – and on the back of crumbling natural gas prices that settled at their lowest levels in 2.5 years yesterday and fell below $2/million BTU this morning.
While diesel futures are soft, rack markets across the Southwestern US remain unusually tight, with spreads vs spot markets approaching $1/gallon in several cases as local refiners go through maintenance and pipeline capacity for resupply remains limited. The tightest supply in the region however remains the Phoenix CBG boutique gasoline grade which is going for $1.20/gallon over spots as several of the few refineries that can make that product are having to perform maintenance at the same time.
French refinery strikes continue for a 4th week and are estimated to be keeping close to 1 million barrels/day of fuel production offline, which is roughly 90% of French capacity and almost 1% of total global capacity. That disruption is having numerous ripple effects on crude oil markets in the Atlantic basin, while the impact on refined product supplies and prices remains much more contained than it was when this happened just 5 months ago.
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