Energy Markets Are On Storm Watch This Morning As Most Of The Industry Takes The Day Off

Market TalkFriday, Jul 5 2024
Pivotal Week For Price Action

Energy markets are on storm watch this morning as most of the industry takes the day off, and financial markets digest a weaker Jobs report and the worst defeat by British conservatives in 248 years.

Refined products were trading a penny lower Friday, despite a shift north and east in Beryl’s projected path that puts a strike on the country’s busiest energy port (Corpus Christi….not Houston) in play while some models also have the storm hugging the Texas coast as it moves north and east which would put many more refineries and oil rigs in the storm’s path and no matter the damage it does or doesn’t do, it’s certainly going to disrupt import and export traffic over the coming week. Most refined product traders have the day off today since cash markets aren’t being assessed, but don’t be surprised if futures turn around later in the morning as this new risk reality sets in, particularly given how much flooding parts of the state have already seen this year even before dealing with a tropical storm.

With the unfavorable shift in the storm’s path for oil producers and refiners, expect a quick move to evacuate non-essential personnel from Gulf of Mexico oil rigs starting today, and we’ll likely see at least the 3 Corpus Christi area refineries pull back on their run rates over the weekend to avoid the extra damage that can occur if they’re knocked offline while running full out. Models now seem to be agreeing that wherever the storm finally makes landfall, it will move inland starting Monday and dump heavy rains across Texas for potentially two full days before heading north and east to dump rain on the population centers in the North Eastern US late next week. At this point the storm is predicted to be a category 1 hurricane at landfall, but don’t be surprised if that scale increases over the weekend.

The June payrolls report estimated 206,000 jobs added in June, while prior month estimates were slashed by 111,000 jobs, suggesting the labor market isn’t quite as strong as previously thought. Political conspiracy theorists will also note the statistical impossibility of the BLS revising 24 of the past 25 estimates lower. The official unemployment rate ticked up to 4.1% while the less manipulated U-6 unemployment rate held steady at 7.4%.

Markets largely shrugged off a huge 12-million-barrel decline in crude oil inventories Wednesday as the DOE continues to struggle with its accounting methods, showing a huge decrease in its oil adjustment factor on the week. Refiners cranked up run rates across all 5 PADDs last week, taking advantage of the pre-holiday surge in demand and shrugging off weaker margins. Between the storm in the Gulf Coast and the heat wave targeting California, it’s likely that we’ll see run rates cut back in the July 17 report, as next week’s data is compiled based on data reported today before those impacts are felt.

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Market Talk Update 7.5.2024

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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.

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

Pivotal Week For Price Action
Market TalkWednesday, Jul 17 2024

Week 28 - US DOE Inventory Recap