Energy Complex Under Pressure
Under pressure: The energy complex is facing another wave of selling for a fourth straight day, and the trend-lines that have held up prices for 4.5 months are finally facing a real test. If that support holds, this week’s sell-off may soon be forgotten, but a break down here sets up another 20-30 cents of downside potential for refined products as they correct one of the largest rallies in history.
RBOB futures did trade higher through most of the night, thanks at least in part to reports of a gasoline spill that forced the buckeye pipeline to close one of its lines that feeds the NY harbor area. The line that’s closed primarily delivers to Long Island, and so far it doesn’t seem to be impacting flows around the NYH trading hub, so that impact should be minimal unless the damage is found to be more widespread. Separate reports that one of the last standing refineries on the East Coast was forced to shut several units for unplanned repairs also helped give gasoline prices a boost overnight, but those gains have not lasted, and RBOB futures are now trading nearly 14 cents below the highs set Sunday night.
According to the DOE’s weekly status report there is still roughly 1.5 million barrels/day of refining capacity in the Gulf Coast offline from where run rates were prior to the Polar Plunge in February. The recovery from that event is now taking longer than what we’ve seen in even the most severe hurricanes of the past 20 years, as the impacts were much more widespread, and most plants did not start shutting down operations ahead of the storm, meaning more damage was likely when they were knocked offline. There are also reports that some plants decided to move up maintenance since the facilities were down anyway, which is probably contributing to the slow recovery. While PADD 3 runs still have plenty of room to recover, PADD 2 run rates have already reached pre-storm levels and PADD 1 refiners have increased rates to Pre-COVID levels, taking advantage of the better margin environment. West Coast (PADD 5) runs are holding steady, while PADD 4 runs remain not much more than a rounding error.
If you’re reading this, you’re probably not using Microsoft Office 365, which published a root cause analysis of the major outage that affected Outlook & Teams and (even worse for the Gen Z crowd) Xbox live nationwide. If it doesn’t make sense how they can publish a root cause analysis on a problem that as of this morning hasn’t been solved, you’re not alone, but don’t worry they’ll keep telling us it’s fixed. In the meantime, if you’re missing a quote or another regular email, please verify with old school methods like texting or tweeting.
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Energy Markets Rally Again Thursday After A Choppy Wednesday Session
Energy markets are trying to rally again Thursday after a choppy Wednesday session. RBOB gasoline futures are leading the push higher, on pace for a 3rd consecutive day of gains after finding a temporary floor Tuesday and have added 12 cents from those lows.
Equity markets are pointing sharply lower after a weak Q1 GDP estimate which seems to have contributed to a pullback in product prices over the past few minutes, but don’t be surprised if the “bad news is good news” low interest rate junkies start jumping in later on.
The DOE’s weekly report showed sluggish demand for gasoline and diesel, but inventory levels in most markets continue to follow their typical seasonal trends. Refinery runs held fairly steady last week with crude inputs down slightly but total gross throughputs up slightly as most facilities are now back online from a busy spring maintenance season and geared up for peak demand this summer.
Propane and propylene exports spiked to a record high north of 2.3 million barrels/day last week, which demonstrates both the US’s growing influence on global product markets, and the steady shift towards “other” products besides traditional gasoline and diesel in the level of importance for refiners.
The EIA acknowledged this morning that its weak diesel consumption estimates reflected the switch to Renewable Diesel on the West Coast, although they did not provide any timeline for when that data will be included in the weekly survey. The agency acknowledged that more than 4% of the total US consumption is now a combination of RD and Biodiesel, and that number is expected to continue to grow this year. This morning’s note also suggested that weak manufacturing activity was to blame for the sluggish diesel demand across the US, while other reports suggest the freight recession continued through Q1 of this year, which is also contributing to the big shift from tight diesel markets to oversupplied in several regions.
Valero kicked off the Q1 earnings releases for refiners with solid net income of $1.2 billion that’s a far cry from the spectacular earnings north of $3 billion in the first quarter of 2023. The refining sector made $1.7 billion, down from $4.1 billion last year. That is a pattern that should be expected from other refiners as well as the industry returns to a more normal market after 2 unbelievable years. You wouldn’t guess it by looking at stock prices for refiners though, as they continue to trade near record highs despite the more modest earnings.
Another pattern we’re likely to see continue with other refiners is that Renewable earnings were down, despite a big increase in production as lower subsidies like RINs and LCFS credit values sting producers that rely on those to compete with traditional products. Valero’s SAF conversion project at its Diamond Green joint venture is progressing ahead of schedule and will give the company optionality to flip between RD and SAF depending on how the economics of those two products shakes out this year. Valero also shows part of why refiners continue to disappear in California, with operating expenses for its West Coast segment nearly 2X that of the other regions it operates in.
Week 16 - US DOE Inventory Recap
Energy Markets Trading Quietly In The Red As Ethanol Prices Rally To Five-Month High
Energy markets are trading quietly in the red to start Wednesday’s session after a healthy bounce Tuesday afternoon suggested the Israel-Iran-linked liquidation had finally run its course.
There are reports of more Ukrainian strikes on Russian energy assets overnight, but the sources are sketchy so far, and the market doesn’t seem to be reacting as if this is legitimate news.
Ethanol prices have rallied to a 5-month high this week as corn and other grain prices have rallied after the latest crop progress update highlighted risks to farmers this year, lower grain export expectations from Ukraine, and the approval of E15 blends this summer despite the fact it pollutes more. The rally in grain and renewables prices has also helped RIN values find a bid after it looked like they were about to test their 4-year lows last week.
The API reported small changes in refined product inventories last week, with gasoline stocks down about 600,000, while distillates were up 724,000. Crude oil inventories increased by 3.2 million barrels according to the industry-group estimates. The DOE’s weekly report is due out at its normal time this morning.
Total reported another upset at its Port Arthur refinery that’s been a frequent flier on the TCEQ alerts since the January deep freeze knocked it offline and damaged multiple operating units. This latest upset seems minor as the un-named unit impacted was returned to normal operations in under an hour. Gulf Coast basis markets have shrugged off most reports of refinery upsets this year as the region remains well supplied, and it’s unlikely we’ll see any impact from this news.
California conversely reacted in a big way to reports of an upset at Chevron’s El Segundo refinery outside of LA, with CARBOB basis values jumping by more than a dime. Energy News Today continued to show its value by reporting the upset before the flaring notice was even reported to area regulators, proving once again it’s ahead of the curve on refinery-related events. Another industry news outlet meanwhile struggled just to remember where the country’s largest diesel seller is located.
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