ULSD Futures Are Down 10 Cents So Far This Week And Lower Than Normal Refinery Runs Across the US So Far

Market TalkWednesday, Mar 6 2024
Pivotal Week For Price Action

After 2 days of selling to start the week, WTI is trying to lead the energy complex in a recovery rally but is finding refined products to be reluctant participants in the early going. ULSD futures are down 10 cents so far this week and are the only contract holding in the red so far this morning. Diesel prices have lost 35 cents since peaking a month ago and look weak both technically and seasonally. RBOB futures are down a similar 8 cents so far this week, but unlike diesel the charts and seasonal influences for gasoline are still favorable for a run higher this spring, with the $3 mark an easy target to peg.

Reports that Saudi Arabia is raising its prices to Asian buyers seems to be helping encourage the bid in both WTI and Brent grades this morning, even though the move was largely predicted following the OPEC output cut extension, and only amounts to 20 cents/barrel.

The API reported a draw of gasoline stocks of around 2.8 million barrels last week while diesel stocks fell by 1.8 million and crude oil stocks had a small increase just under ½ million barrels. The DOE’s weekly status report is due out at its normal time this morning and isn’t scheduled for any more weekly delays until after Memorial Day.

The EIA this morning highlighted the lower than normal refinery runs across the US so far this year caused by a variety of weather and power issues, on top of a busy scheduled maintenance season in Q1. We should see those run rates start moving appreciably higher over the next couple of weeks as 3 of the top 10 refineries in the country are ramping back up, and crack spreads have improved notably in most markets which should allow those facilities that cut runs in December to ramp up run rates if they haven’t already done so.

While the reduced refinery runs have helped keep a lid on inventories despite the sluggish winter demand season, we’re already seeing distillate cracks in particular come under pressure as those large refiners come back online, while gasoline cracks are benefitting from the change to summer gasoline grades, which also limits the amount of blending that can be done, and thus total output.

A fire was reported at the Husky/Cenovus refinery in Lima Ohio Tuesday morning. No word yet on what units may have been impacted by the blaze, or what if any operational impacts there will be. This is not to be confused with the Husky/Cenovus refinery in Toledo that killed 2 workers in a fire in September 2022, or the Husky/Cenovus refinery that exploded and forced Superior Wisconsin to evacuate a large part of the town in 2018.

Both Flint Hills and Valero reported upsets at their Corpus Christi area refineries in the past 24 hours. Flint Hills reported a brief trip in a Flare Gas recovery unit that lasted just over an hour, while Valero reported multiple units initiated shutdown procedures due to a power disruption.

RIN values have bounced modestly this week after Chevron announced it was closing two of its biodiesel plants due to a lack of enough government subsidies necessary to make turning soybeans into diesel profitable. Biodiesel is widely viewed as the weakest link in the renewable fuel world, lacking the favorable characteristics or scale of Renewable Diesel options that use the same feedstocks, and more closures (on top of those we already saw last year) are expected even if the EPA increases the RFS mandate, since the $1/gallon Blender’s Tax credit is going away next year, and many facilities don’t have a low enough CI score to qualify for much under the new clean fuel production credit program.

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Market Talk Update 03.06.2024

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Pivotal Week For Price Action
Market TalkFriday, Apr 19 2024

Gasoline Futures Are Leading The Way Lower This Morning

It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.

Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.

A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.

Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.

Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.

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Pivotal Week For Price Action
Market TalkThursday, Apr 18 2024

The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days

The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.

The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.

An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.

Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.

In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.

The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.

Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.

Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.

PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.

Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.

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

Pivotal Week For Price Action