This Year’s Figures Were Eye Popping And Led To The Largest Weekly Increase In Gasoline Stocks In Over 30 Years

Market TalkFriday, Jan 5 2024
Pivotal Week For Price Action

Energy bulls are trying for another rally to start Friday’s trading, after a bearish DOE report threw cold water on their plans to start the new year on a strong note. Yesterday’s big reversal pushed prices back into neutral territory, suggesting more choppy action in the days ahead as we search for direction.

The week between Christmas and New Year’s is always tough on demand, but still this year’s figures were eye popping and led to the largest weekly increase in gasoline stocks in over 30 years. Diesel inventories also swelled more than 10 million barrels on the week, pushing total US inventories to a 2-year high. Total refinery runs continued to tick higher on the week, as plants show no signs of slowing down despite the correction in margins last quarter. 

The BLS reported an increase of 216k jobs in December, while the headline unemployment rate ticked lower to 3.7% while the U-6 unemployment rate (which doesn’t discard as many people) ticked up .1% to 7.1%. The jobs estimate for October and November were both revised lower, marking 10 straight months of downward revisions, which of course will keep the conspiracy theorists busy. Anyone that pays attention to the weekly DOE reports knows that accounting struggles are nothing new for the FEDs. 

Speaking of which, we saw another big swing higher in the crude oil adjustment factor from the DOE last week, which helped limit the year-end draw down in US crude oil stocks. The agency admitted last year that the lack of clarity on other oil products that are largely a bi-product of fracking, had caused a severe understatement of US oil production and overstatement of total petroleum demand for years, and the corrections are still apparently working their way through the report.     

For real this time?  The CEO of Pemex said its new Dos Bocas refinery would begin producing on-spec products at the end of January and would run at an average rate of 243,000 barrels/day this year before reaching its capacity of 320,000 barrels next year. This announcement came less than a week after Pemex was ordered to seize the hydrogen plant at another refinery from Air Liquide. Perhaps Mexico’s president should ask Venezuela how seizing assets from the experts turned out for them before continuing this trend, particularly given Hydrogen’s critical role in producing low Sulphur fuels.

Another country not particularly known for honest business dealings is making big promises again this week. Nigeria’s new Dangote refinery was reportedly taking in more crude shipments this week as it brings the facility online, with expectations of producing on-spec fuels in February. These two new refineries – both of which are years behind schedule and billions over budget – could tip the world into an excess capacity position IF they ever come fully online this year. Of course, Mexico’s asset seizures, and cartel violence and Nigeria’s ongoing ethnic and religious wars certainly aren’t encouraging international cooperation with their efforts. 

Meanwhile, both Chevron and Exxon announced this week that they were taking multi-billion dollar write downs on their assets in California due to “challenges in the state regulatory environment.” It’s worth noting that there’s not any new California policy in place (so far) this year driving that decision, so it’s likely this is more of a year-end financial planning move that may limit their tax exposure, while also taking advantage of getting some distressed assets written down in a very strong year where that move will be less painful to shareholders. In a CNBC interview this morning, the US Energy secretary was hard pressed to answer how the rest of the country could avoid California’s high gasoline price fate if the federal push to EV’s continued. 

More potential bad news for some US refiners: The Trans Mountain Corp plans to being line fill operations for its new crude oil pipeline in the next few months, that will alleviate shipping bottlenecks that have afforded significant economic advantages for years to many refineries. The PADD 2 facilities who are already facing high inventory levels and low basis differentials look the most vulnerable to this change. See the PADD 2 inventory charts below to see why this could be a long winter for suppliers in the Mid Continent.

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Market Talk Update 01.05.2024

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Pivotal Week For Price Action
Market TalkThursday, Feb 22 2024

RBOB And ULSD Futures Down Around 2.5 Cents After A Mixed Performance Wednesday

Refined products are leading the energy complex lower to start Thursday’s trading with both RBOB and ULSD futures down around 2.5 cents after a mixed performance Wednesday.

The API reported another large build in crude oil inventories last week, with inventories up more than 7 million barrels while gasoline inventories increased by 415,000 barrels and diesel stocks dropped by 2.9 million. The crude oil build was no doubt aided once again by the shutdown of BP’s Whiting refinery that takes nearly ½ million barrels/day of oil demand out of the market. That facility is said to be ramping up operations this week, while full run rates aren’t expected again until March. The DOE’s weekly report will be out at 11am eastern this morning.

Too much or not enough? Tuesday there were reports that the KM pipeline system in California was forced to shut down two-line segments and cut batches in a third due to a lack of storage capacity as heavy rains have sapped demand in the region. Wednesday there were new reports that some products ran out of renewable diesel because of those pipeline delays, bringing back memories of the early COVID lockdown days when an excess of gasoline caused numerous outages of diesel.

The Panama Canal Authority has announced $8.5 billion in sustainability investments planned for the next 5 years. Most of those funds are aimed at sustainability efforts like modernizing equipment and installing solar panels, while around $2 billion is intended for a better water management system to combat the challenges they’ve faced with lower water levels restricting transit by 50% or more in the past year. More importantly in the near term, forecasts for the end of the El Nino pattern that contributed to a record drought, and the beginning of a La Nina pattern that tends to bring more rain to the region are expected to help improve water levels starting this summer.

The bad news is that La Nina pattern, coupled with historically warm water temperature has Accuweather forecasters sounding “Alarm Bells” over a “supercharged” hurricane season this year. Other years with a similar La Nina were 2005 which produced Katrina, Rita and Wilma and 2020 when we ran out of names, and the gulf Coast was repeatedly pummeled but markets didn’t react much due to the COVID demand slump. Perhaps most concerning for the refining industry is that unlike the past couple of years when Florida had the bullseye, the Texas coast is forecast to be at higher risk this year.

RIN prices continued their slide Wednesday morning, trading down to 38 cents/RIN before finally finding a bid that pushed values back to the 41-42 cent range by the end of the day.

The huge slide in RIN values showed up as a benefit in Suncor’s Q4 earnings report this morning, as the Renewable Volume Obligation for the company dropped to $4.75/barrel vs $8.55/barrel in Q4 of 2022. Based on the continued drop so far in 2024, expect that obligation to be nearly cut in half again. Suncor continued the trend of pretty much every other refiner this quarter, showing a dramatic drop in margins from the record-setting levels in 2022, but unlike a few of its counterparts over the past week was able to maintain positive earnings. The company noted an increase in refining runs after recovering from the Christmas Eve blizzard in 2022 that took down its Denver facility for months but did not mention any of the environmental challenges that facility is facing.

Valero’s McKee refinery reported a flaring event Wednesday that impacted multiple unites and lasted almost 24 hours. Meanwhile, Total reported more flaring at its Pt Arthur facility as that plant continues to struggle through restart after being knocked offline by the January deep freeze.

Speaking of which, the US Chemical Safety board released an update on its investigation into the fire at Marathon’s Martinez CA renewable diesel plant last November, noting how the complications of start -up leave refineries of all types vulnerable.

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

Pivotal Week For Price Action
Market TalkWednesday, Feb 21 2024

It’s A Mixed Start For Energy Markets To Start Wednesday’s Session After A Heavy Round Of Selling Tuesday

It’s a mixed start for energy markets to start Wednesday’s session after a heavy round of selling Tuesday. RBOB gasoline futures are clinging to modest gains in the early going while the rest of the complex is moving lower.  

WTI is pulling back for a 2nd day after reaching a 3.5 month high just shy of $80. The pullback pushes prompt values back below the 200-day moving average, reducing the likelihood of a breakout to the upside near term.

ULSD values are down nearly 10 cents for the week and are down more than 26 cents from the high trade set February 9th. That pullback leaves ULSD in neutral territory and could act as a headwind for gasoline prices that still seem poised to at least attempt a typical spring rally that adds roughly 20-30% from winter values.

RIN prices continue their slide this week, with D6 and D4 values reaching new 4-year lows around $.41/RIN Tuesday, which is down just slightly from the $1.62/RIN they were going for a year ago.

HF Sinclair reported a loss for Q4 this morning, with its refining and renewables segments each losing roughly $75 million for the quarter. The change from a year ago in the refining segment is a harsh reminder of the cyclical nature of the business as earnings dropped more than $800 million year on year, with inventory cost adjustments accounting for roughly ¼ of that decline.   

While it wasn’t mentioned in the press release, HFS has the most direct exposure to New Mexico’s recent approval of a clean fuel standard that will start in 2026. That law will no doubt help the company’s struggling Renewables assets in the state but will also create extra costs for their traditional refining operations.

The EIA this morning noted that conditions in the Panama Canal improved slightly in January, allowing Gulf Coast exports to Asia, primarily of Propane and ethane, to increase. While transit capacity is still far below levels we saw before the drought reduced operations in the canal, any improvement offers welcome relief to shippers as they can avoid going the long-way around to avoid the violence in the Red Sea.

France’s navy didn’t waste any time getting into the Red Sea action, shooting down a pair of Houthi Drones less than a day after joining the EU’s official mission to assist in clearing the shipping lanes. It’s not yet clear whether this marks the first official military victory by the French since Napoleon. 

Reminder that the weekly inventory reports are delayed a day due to the holiday Monday.

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