Refined Products Bounce Keeping Prices Well Above Their 6-Week-Old Trend Lines

Market TalkThursday, Jan 26 2023
Pivotal Week For Price Action

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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Market Talk Update 01.26.2023

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Market TalkFriday, Apr 12 2024

Charts Continue To Favor A Push Towards The $3 Mark For Gasoline, While Diesel Prices May Need To Be Dragged Along For The Ride

Energy prices are rallying once again with the expected Iranian attack on Israel over the weekend appearing to be the catalyst for the move. RBOB gasoline futures are leading the way once again, trading up more than a nickel on the day to reach a fresh 7 month high at $2.8280. Charts continue to favor a push towards the $3 mark for gasoline, while diesel prices may need to be dragged along for the ride.

So far it appears that Motiva Pt. Arthur is the only refinery that experienced a noteworthy upset from the storms that swept across the southern half of the country this week. Those storms also delayed the first round of the Masters, which matters more to most traders this week than the refinery upset.

Chevron’s El Segundo refinery in the LA-area reported an unplanned flaring event Thursday, but the big moves once again came from the San Francisco spot market that saw diesel prices rally sharply to 25 cent premiums to futures. The Bay Area now commands the highest prices for spot gasoline and diesel as the conversion of 1 out of the 4 remaining refineries to renewable output is not-surprisingly creating disruptions in the supply chain.

RIN values dropped back below the 50-cent mark, after the recovery rally ran out of steam last week. The EPA is facing numerous legal challenges on the RFS and other policies, and now half of the US states are challenging the agency’s new rule restricting soot emissions. That lack of clarity on what the law actually is or may be is having widespread impacts on environmental credits around the world and makes enforcement of such policies a bit of a joke. Speaking of which, the EPA did just fine a South Carolina company $2.8 million and require that it buy and retire 9 million RINs for improper reporting from 2013-2019. The cost of those RINs now is about 1/3 of what it was this time last year, so slow playing the process definitely appears to have paid off in this case.

The IEA continues to do its best to downplay global demand for petroleum, once again reducing its economic outlook in its Monthly Report even though the EIA and OPEC continue to show growth, and the IEA’s own data shows “Robust” activity in the first quarter of the year. The IEA has come under fire from US lawmakers for changing its priorities from promoting energy security, to becoming a cheerleader for energy transition at the expense of reality.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 11 2024

Diesel Prices Continue To Be The Weak Link In The Energy Chain

Energy prices are ticking modestly lower this morning, despite warnings from the US that an Iranian attack on Israeli interest is “imminent” and reports of weather induced refinery outages, as demand fears seem to be outweighing supply fears temporarily. Diesel prices continue to be the weak link in the energy chain with both the DOE and OPEC reports giving the diesel bears reason to believe lower prices are coming.

The March PPI report showed a lower inflation reading for producers than the Consumer Price Index report, leading to an immediate bounce in equity futures after the big wave of selling we saw yesterday. To put the CPI impact in perspective, a week ago Fed Fund futures were pricing in an 80% chance of an interest rate cut by the FED’s July 31 meeting, and today those odds have shrunk to 40% according to the CME’s FedWatch tool.

OPEC’s monthly oil market report held a steady outlook for economic growth and oil demand from last month’s report, noting the healthy momentum of economic activity in the US. The cartel’s outlook also highlighted significant product stock increases last month that weighed heavily on refining margins, particularly for diesel. Given the US focus on ULSD futures that are deliverable on the East Coast, which continues to have relatively tight supply for diesel, it’s easy to overlook how quickly Asian markets have gotten long on distillates unless of course you’re struggling through the slog of excess supply in numerous west coast markets these days. The OPEC report noted this in a few different ways, including a 33% decline in Chinese product exports as the region simply no longer needs its excess. The cartel’s oil output held steady during March with only small changes among the countries as they hold to their output cut agreements.

If you believe the DOE’s diesel demand estimates, there’s reason to be concerned about domestic consumption after a 2nd straight week of big declines. The current estimate below 3 million barrels/day is something we typically only see the week after Christmas when many businesses shut their doors. We know the DOE’s figures are missing about 5% of total demand due to Renewable Diesel not being included in the weekly stats, and it’s common to see a drop the week after a holiday, but to lose more than a million barrels/day of consumption in just 2 weeks will keep some refiners on edge.

Most PADDs continue to follow their seasonal trends on gasoline with 1 and 2 still in their normal draw down period, while PADD 3 is rebuilding inventories faster than normal following the transition to summer grade products. That rapid influx of inventory in PADD 3 despite robust export activity helps explain the spike in premiums to ship barrels north on Colonial over the past 2 weeks. Gasoline also saw a sizeable drop in its weekly demand estimate, but given the holiday hangover effect, and the fact that it’s in line with the past 2 years, there’s not as much to be concerned about with that figure. While most of the activity happens in PADDs 1-3, the biggest disconnect is coming in PADDs 4 and 5, with gasoline prices in some Colorado markets being sold 50 cents or more below futures, while prices in some California markets are approaching 90 cents above futures.

Severe weather sweeping across the southern US knocked several units offline at Motiva’s Pt Arthur plant (the country’s largest refinery) Wednesday, and it seems likely that Louisiana refineries will see some disruption from the storm that spawned tornadoes close to the Mississippi River refining hub. So far cash markets haven’t reacted much, but they’ll probably need more time to see what damage may have occurred.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action