Risk-Off Sentiment, Economic Concerns Push Gasoline Futures Lower

Market TalkWednesday, Jun 21 2023
Pivotal Week For Price Action

The selloff continued for energy contracts overnight before buyers stepped in around 7:45 to push WTI and ULSD prices to breakeven levels. There’s a feel of risk-off sentiment in energy and equity markets the past couple of days as the FED continues to explain its plan to continue pushing interest rates higher after a pause, while other major markets are flashing signs of economic slowdown.

Gasoline prices were leading the move lower this morning, down more than a nickel at one point, aided by a collapse in ethanol RIN values that’s taking some pressure off of refinery cracks spreads that need to be high enough to offset the cost of the RFS.  

D6 RIN values were climbing Tuesday, trading back up to $1.46 for 2023 vintage before a Reuters report in the afternoon that suggested today’s long-delayed EPA ruling on the RFS volume thresholds would increase total biofuel quotas, but lower the ethanol volumes from earlier proposals.  Sellers immediately emerged in the wake of that report, with trades of $1.39 late Tuesday (after-market assessors were done for the day) and already this morning, trades below $1.30 have been heard, marking the lowest levels since April 2022. If the reported change is true, it would seem to be a slap in the face to the ethanol lobbying group that just last week agreed to allow the EPA to delay its final ruling to today despite a previous court-ordered deadline of June 14th.   

Tropical Storm Bret continues to churn towards the Caribbean, but has been downgraded in forecasts which now suggest the storm won’t reach hurricane strength as was predicted earlier. The weaker strength also means the storm is expected to stay on the southern edge of its range, which keeps it moving west towards Central America and not hooking north towards the US.  

The storm system chasing Bret is given 80% odds of developing over the next week by the NHC, and this system is projected to hook north as it moves West, making it a potential threat to the East Coast, although many early models suggest this system will stay out to sea as it moves north. 

Both Tulsa OK loading racks resumed operations Tuesday after storms knocked out power to a large area around the city earlier in the week. The Holly refinery is also reported to be attempting restart, which will alleviate the concerns of fuel shortages if it can manage to get back online safely in the next couple of days. 

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Market Talk Update 06.21.2023

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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.

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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