WTI Drops To Lowest Settlement Value In A Month

Market TalkFriday, Jul 16 2021
Pivotal Week For Price Action

The back and forth action continues with energy prices rallying to start Friday’s session, after WTI dropped to its lowest settlement value in a month on Thursday. Refined products seem to be stuck in a temporary technical no-man’s land, still needing a big rally to test their multi-year highs set earlier in the month, while staying a safe distance above their bullish trend-lines. The outside influences of equity and currency markets continue to have an inconsistent impact on energy prices as the correlations between the asset classes has weakened over the past couple of weeks.

OPEC’s monthly oil market report held global supply & demand estimates steady, and like the IEA report earlier in the week, suggested that will lead to continued drawdowns in inventories near term, although supply should catch up sometime in the next year.  The cartel’s monthly output jumped by 586mb on the month, 3/4 of which came from Saudi Arabia unwinding its voluntary output cuts now that the market seems to be ready to absorb those barrels without hurting prices. 

The report also highlighted how increased refinery output globally was tightening the crude oil market, and putting downward pressure on refining margins across all regions. The other piece of bad news for refiners is that depressed values for crude tankers has led to several newly built VLCC’s to convert to hauling clean products, which is putting downward pressure on those rates as well and contributing to the competition globally to find a home for those barrels, even as some in-land regions continue to face shortages.

West Coast spot markets saw another day of stronger basis differentials, largely offsetting the downward slide in futures, even though California refinery output and inventories increased last week. That strength continues to be blamed on an LA-area refinery being forced to shut multiple units due to power failures earlier in the week, although it’s still unclear what the damage may be or how long that downtime may last. 

RINs have been uncharacteristically quiet this week, with D6 (ethanol) values ending at essentially the same level the past 3 days, as we’ve gone an entire week without a major change being announced in Washington.  

The tropics are quiet with no storm activity forecast by the NHC for the next 5 days, giving us a bit of a breather before what’s still expected to be a busy season.

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Market Update (01A) 7.16

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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