Energy Market Resurgence Amid Summer Storms and Price Spikes

Market TalkFriday, Jun 28 2024
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Energy futures are ticking modestly higher to cap off a month in which prices started out weak but ended strong, offering hope to producers and refiners who were otherwise staring at a summer of discontent. Diesel prices started the month by dropping to their lowest level in more than a year but have rallied more than 30 cents since June 4th. Gasoline prices touched their lowest level since February (which was a much cheaper winter-spec product) before rallying 25 cents in the past 3.5 weeks. Weekly charts now suggest both RBOB and ULSD have a chance to make a run at the $2.80 mark in July, if they can break through near term resistance around $2.60.

Today is expiration day for July RBOB and ULSD futures. Most cash markets have already rolled to trading vs August, but for the NYH and Group 3 markets that will shift today, be sure you’re looking at the RBQ and HOQ codes for price direction today.

Next week spot markets will not be assessed both Thursday and Friday, but futures will trade in an abbreviated session Thursday (no settlements) and a full day on Friday, so there’s an increased chance that rack prices could move over the extended quasi-4-day weekend.

BP announced a hiring freeze and a pause in new large renewables investments, just a week after announcing a new investment in 2nd generation ethanol in Brazil, which has the potential to achieve much lower carbon intensity than US made ethanol. This is just another harsh reminder that renewables are only really sustainable if they can make a return.

The EIA this morning highlighted the shifting patterns in US commercial electricity demand as rapid growth in data centers have created huge new consumption in several states, while others suffering through a so-called brain drain migration pattern see their volumes decline. While the US has more natural gas than it can consume domestically, which helped push prices to record lows earlier this year, getting that gas to where it needs to be, exactly when it needs to be there to support the rapid changes in electricity demand is expected to be a challenge for years to come.

They said it was going to be a busy hurricane season, and so far they’re not wrong as the NHC is tracking 3 different potential storm systems, and we haven’t even hit July. One of the three to keep an eye on is known as 95L at the moment but is given 90% odds of being named (Beryl) in the next few days as it moves towards the Caribbean.

The European model which has had a better track record for accuracy suggests there’s at least a good chance this storm keeps heading west over land in Mexico late next week, which means it could end up being a non-issue for the US. That said both the Euro and GEFS models are showing at least some potential that this system takes aim at the Houston area, which of course is the heart of the industry and has the most potential for wide-spread disruption if various production, shipping, refining or pipeline activities are forced to close. It looks like next Wednesday is about when this system will either make its turn north towards the Gulf and make it a big deal or continue West and let the industry breathe a sigh of relief.

Meanwhile the first storm of the 3 to be tracked (94L) looks like a non-event even though it’s expected to be in the SW Gulf of Mexico next week as it will move west over Mexico. For a country who is seeing widespread issues due to heatwaves and a lack of water, this could actually be good news depending of course on where and how quickly that rain hits.

The 3rd storm is given 20% odds of forming in soon-to-be Beryl’s wake, and it’s too soon to say where it might be headed if it does form.

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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.

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

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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
Market TalkWednesday, Jul 17 2024

Week 28 - US DOE Inventory Recap