Refined Products Have Erased The Big Losses To Start The Week As The Recovery Rally Extends For A 2nd Day

Market TalkThursday, Dec 14 2023
Pivotal Week For Price Action

Refined products have erased the big losses to start the week as the recovery rally extends for a 2nd day. Both RBOB and ULSD futures are up more than a dime from Tuesday’s lows, while WTI has rallied $3.5 in an effort to snap its 7-week losing streak.  

Don’t call it a comeback:  Gulf Coast diesel prices rallied sharply Wednesday after reaching their lowest levels in 2 years on Tuesday. Basis differentials have climbed 20 cents over the past two sessions after trading at a 44-cent discount to futures on Monday, and that rally has popped the bubble in values for space on Colonial’s line 2.   

Markets around the world are rallying after the FED signaled it was prepared to begin lowering rates next year in its latest FOMC announcement. The CME’s Fedwatch tool shows a 90% probability of the first-rate cut coming by March, vs 35% odds on that happening 1 month ago.  US stock markets are poised to reach a 7th straight week of gains and the DJIA surged to a record high following that announcement.    

As has been the case for the past several months, the IEA’s monthly oil market report has sounded the most bearish compared to OPEC and the EIA’s monthly forecasts, and has been the case for several months, the market seems to be shrugging off this latest projection.  The report cited a sharp slowdown in European demand, and strong supply growth from the US, Iran, Brazil and Guyana as reasons for the pessimistic outlook, and predicted that 2024 will be a year in which producers are forced to protect their market share.

US refiners pumped the brakes last week after 4 weeks of increased output after returning from a busy fall maintenance season. With no major disruptions reported outside of a couple hiccups in Southern California last week, it's likely we’re seeing the early stages of refiners rationalizing their production given the sharp pullback in margins and the distressed basis levels we’ve seen lately. For many facilities, this is the first time in 3 years they’ve had to consider curtailing run rates to avoid losing money.

Refined product inventories increased last week, despite the slight slowdown in output and a 2nd week of increased demand following the Thanksgiving slump. Reported diesel stocks remain tight on the coasts and ample in the middle of the country, consistent with the big inconsistencies in basis values between markets. PADD 5 stocks continue to look worse than they are however as the influx of Renewable Diesel doesn’t yet show up in the DOE’s weekly report. 

Can’t catch a break: Marathon reported another fire at its Galveston Bay refinery, which is the 4th largest in the country, and perhaps the most troubled facility in the country ever since the PES Philadelphia refinery blew up and went away in 2019. This latest fire adds to the 39 upset reports the facility has made to the TCEQ in the past year, although company officials said output would not be affected. 

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

Market Talk Update 12.14.2023

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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.

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

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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.

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

Pivotal Week For Price Action