Shockwave Sent Through Energy Arena

Market TalkThursday, Oct 22 2020
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Weak demand estimates reported by the DOE sent a shockwave through the energy arena Wednesday, pushing refined product futures to their lowest levels in two weeks, and some cash prices to their lowest levels in five months. All talk and no action from Washington on a stimulus bill to try and prop up the economy, which does not seem to be helping the sentiment for either energy or equity markets, as an attempt at a recovery bounce overnight has already fallen flat. 

U.S. gasoline demand reached an 18 week low according to the DOE’s weekly estimate, and gasoline prices in many markets followed suit, reaching their lowest levels in about the same time-frame.   

Gasoline prices in the NYH, LA and Group 3 spot markets all reached their lowest levels since early May during Wednesday’s sell-off, and are threatening further losses after the overnight bounce has fizzled in the early going. It’s starting to feel like a move back below $1 for gasoline is inevitable as the seasonal demand slowdown is just beginning, with more run cuts seeming to be the only option for many refiners that might prevent that next move lower.

Diesel demand also saw a large decrease on the week, but unlike gasoline, that figure started from a much higher level and remains above what we saw for most of the summer.  Diesel prices were also hit hard during Wednesday’s sell-off, but still have more room to fall before threatening the low end of their sideways range. 

Refinery runs were reduced across all 5 PADDs last week, as the lingering effects from Hurricane Delta and fall maintenance were both in play. In normal years we’d expect to see fall maintenance peak around this time, and then see refinery runs climb steadily through the end of the year.  With this year being anything but normal, the next few weeks will bring an interesting showdown between the seasonal patterns and a weak margin environment.

Q3 earnings reports are highlighting just how challenging the operating environment is for refiners, and why more run cuts may be likely over the next several months. This morning, Valero and Neste both reported operating losses in their traditional refining segments for the quarter, while their renewable divisions continued to see increasing profits.   

The plight of refiners led a group of Senators to ask the EPA to waive the planned increase in renewable volume obligations for 2021, to help those companies deal with the pandemic, and avoid excessive costs for unreachable targets caused by the weak demand environment. RIN prices have surged to multi-year highs in recent days thanks to stronger crop prices and last month’s ruling on restricting refinery waivers.  We’ll see today if the request sparks a pullback, or is shrugged off given the bigger fish that need frying in Washington these days.

Hurricane Epsilon blew up into a major Hurricane in the past 24 hours – far exceeding earlier forecasts – but is expected to stay out to sea and not threaten land. The system being tracked in the Caribbean is given 30% odds of developing by the NHC, but should not impact the U.S. other than perhaps dumping some rain on south Florida.

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Market TalkThursday, Mar 28 2024

Energy Markets Are Ticking Modestly Higher Heading Into The Easter Weekend With Crude Oil Prices Leading The Way Up About $1.25/Barrel Early Thursday Morning

Energy markets are ticking modestly higher heading into the Easter Weekend with crude oil prices leading the way up about $1.25/barrel early Thursday morning, while gasoline prices are up around 2.5 cents and ULSD futures are about a penny.

Today is the last trading day for April HO and RBOB futures, an unusually early expiration due to the month ending on a holiday weekend. None of the pricing agencies will be active tomorrow since the NYMEX and ICE contracts are completely shut, so most rack prices published tonight will carry through Monday.

Gasoline inventories broke from tradition and snapped a 7 week decline as Gulf Coast supplies increased, more than offsetting the declines in PADDs 1, 2 and 5. With gulf coast refiners returning from maintenance and cranking out summer grade gasoline, the race is now officially on to move their excess through the rest of the country before the terminal and retail deadlines in the next two months. While PADD 3 run rates recover, PADD 2 is expected to see rates decline in the coming weeks with 2 Chicago-area refineries scheduled for planned maintenance, just a couple of weeks after BP returned from 7 weeks of unplanned repairs.

Although terminal supplies appear to be ample around the Baltimore area, we have seen linespace values for shipping gasoline on Colonial tick higher in the wake of the tragic bridge collapse as some traders seem to be making a small bet that the lack of supplemental barge resupply may keep inventories tight until the barge traffic can move once again. The only notable threat to refined product supplies is from ethanol barge traffic which will need to be replaced by truck and rail options, but so far that doesn’t seem to be impacting availability at the rack. Colonial did announce that they would delay the closure of its underutilized Baltimore north line segment that was scheduled for April 1 to May 1 out of an “abundance of caution”.

Ethanol inventories reached a 1-year high last week as output continues to hold above the seasonal range as ethanol distillers seem to be betting that expanded use of E15 blends will be enough to offset sluggish gasoline demand. A Bloomberg article this morning also highlights why soybeans are beginning to displace corn in the subsidized food to fuel race.

Flint Hills reported a Tuesday fire at its Corpus Christi West facility Wednesday, although it’s unclear if that event will have a material impact on output after an FCC unit was “stabilized” during the fire. While that facility isn’t connected to Colonial, and thus doesn’t tend to have an impact on USGC spot pricing, it is a key supplier to the San Antonio, Austin and DFW markets, so any downtime may be felt at those racks.

Meanwhile, P66 reported ongoing flaring at its Borger TX refinery due to an unknown cause. That facility narrowly avoided the worst wildfires in state history a few weeks ago but is one of the frequent fliers on the TCEQ program with upsets fairly common in recent years.

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

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Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

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