Big Deal For U.S. Refiners Announced Tuesday

Market TalkWednesday, May 5 2021
Pivotal Week For Price Action

The rally continues for energy prices as gasoline futures have reached their highest level since July 2018 overnight, and ULSD has broken above $2 for the first time since COVID started wreaking havoc on the world. With the breakout to the upside this week, charts suggest that ULSD should now make a run at the January 2020 highs of $2.1195, while RBOB may test the May 2018 highs of $2.2855.

The API report Tuesday added some fundamental support to an already bullish technical landscape, with large draws for oil and refined products estimated last week. The EIA’s weekly report is due out at its normal time this morning. Last week the government’s demand estimates for gasoline were lower than anecdotal evidence suggested it should be, so if there’s a correction to the upside in consumption estimates this week the stage is set for this rally to snowball later today.

If you ever needed some evidence that low interest rates are the biggest driver of stock prices (and occasionally energy prices) Tuesday’s price action could be exhibit A.

After a morning temper tantrum when the U.S. treasury secretary (and former FED Chair) Janet Yellen suggested the FED may need to raise rates to keep the U.S. economy from overheating, stock markets recovered later in the day when she walked those statements back. While energy prices were up throughout the day, they did pull back some with the early stock selling, and rallied later in the day as optimism for free money returned.

Ethanol and RIN prices continued their big rally on Tuesday, with both D6 and D4 RINs reaching new all-time highs. Unless there’s a pullback in grain prices, it seems there’s little standing in the way of further advances in the coming weeks until the Supreme Court makes its ruling on small refinery waivers.  

A big deal for U.S. refiners was announced Tuesday.

HollyFrontier announced plans to purchase the Shell refinery in Anacortes Washington Tuesday afternoon, and published a slide deck this morning giving the rationale for the purchase. With a price of less than 2X EBITDA for the facility (not to mention the other refineries its closed or sold recently) Shell’s lack of confidence in refining is clear, while Holly makes the case that demand in the PNW region is growing, and the other refinery closures should make this asset attractive. One other benefit of this refinery: deep water port access. That’s something the other Holly facilities in New Mexico, Oklahoma, Kansas, Wyoming and Utah probably won’t have anytime soon.

Holly also reported first quarter earnings, showing another rough stretch for refinery operations which lost $66 million, but were offset by a write-up of $200 million in inventory values, and a $51 gain from a tariff settlement. The company’s CEO said, “A record earnings quarter in our Lubricants and Specialties business, as well as steady performance from HEP, helped offset the impacts of heavy planned maintenance and winter storm Uri on our refining segment during the quarter. As we enter the summer, our focus remains on safely completing the build-out of our Renewables business on schedule.”

Speaking of getting renewable businesses on schedule: CVR announced it was delaying the start of its renewable diesel plant at the Wynnewood refinery in Oklahoma due to the effects of February’s winter storm, and delays in equipment deliveries.

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Pivotal Week For Price Action
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.