The Back And Forth Continues For Energy Markets

Market TalkWednesday, Jan 16 2019
Petroleum Complex Selling Off

The back and forth continues for energy markets this week as prices move lower after scratching out 2 days of modest increases.

The stage was set for another move higher as prices recovered from record oil production and large product inventory builds Wednesday, but seem to have been knocked back by the latest round of fear sweeping through equity markets overnight. We saw a similar sideways pattern from late November to mid-December, at similar values, which could be setting up a strong move to the upside if prices can break through the December highs later this month.

OPEC released its monthly oil market report this morning, showing a production drop of 751,000 barrels/day last month, with intentional production cuts from Saudi Arabia accounting for nearly 2/3rds of the drop, while Iran and Libya also had large declines that weren’t necessarily on purpose. The cartel held its demand outlook for 2019 steady, but made a small reduction in its non-OPEC supply forecast due to the mandatory output cuts in Alberta. The report also featured an interesting read on Monetary policy and its impact on oil markets.

Notes from the DOE/EIA weekly status report:

US crude oil production reached a new all-time high last week at 11.9 million barrels, which is 2.15 million barrels/day more than a year ago. Exporters seem to be figuring out the logistics puzzle of getting oil from the ground to the sea, sending nearly 3 million barrels/day of that domestic production out of the country last week.

Just like we’ve seen the past 2 years, diesel demand had a huge spike in the 2nd week of 2019 as industries across the nation got back to work after the holidays. The 2019 version of the diesel demand restart was particularly dramatic with the EIA’s estimate rising more than 50% in just one week. Diesel production is also following its seasonal trend by declining from the first week of the year, but still remains some 10% above its historical range for this time of year.

Gasoline inventories are on a record-setting pace, holding above the previous record-levels for the first two weeks of the year we saw back in 2017. The gasoline glut is so far contained to the middle of the country with PADDs 2 & 3 showing a huge excess, while the East Coast (PADD 1) is near its 5 year average for January, and the Rockies West (PADDs 4 & 5) are at the bottom end of their seasonal ranges.

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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