Energy Prices Pause After Furious Rally

Market TalkFriday, Feb 19 2021
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A slow warmup in temperatures, and a cool down in U.S. equity markets has energy prices pausing after a furious rally that has pushed gasoline prices to 1.5 year highs.

While electricity has been restored to the majority of homes taken offline by the extreme weather this week, power is still a major bottleneck for fuel distribution at the terminal level as the orders to (justifiably) focus on getting supply to those at risk of freezing over industrial demand mean that many fuel supply locations can’t yet load trucks, just as those trucks are starting to get back on the road. Fuel outages at retail stations across the state of Texas are growing, and are likely to spread for at least a couple of days as the restart races for businesses of all varieties begin.

A Bloomberg report Thursday suggests that four of the largest refineries in TX could take weeks to restart, and if those estimates are accurate, it’s likely other plants in the region could face similar challenges as damage done by frozen pipes and instruments could become a complicated theme of repair work.  A handful of refineries are already attempting to restart units over the past 24 hours, but we won’t know until Monday how those efforts are progressing. 

Cash markets don’t seem too fazed by those reports, as gains in basis values continue to be fairly small despite the widespread refinery upsets. Gulf Coast gasoline transitioned to March cycles this week, meaning they’re trading against the summer-spec April RBOB contract. Don’t be surprised to see RVP waivers granted by the EPA to try and alleviate supply bottlenecks in the coming weeks. 


Colonial pipeline continues to report that it’s operations are ongoing without shutdowns due to the power issues, although it appears the schedules may have slipped a few days as the main origin points in Houston/Pasadena/Pt Arthur/Beaumont and Lake Charles are all struggling with refinery closures and other power/freezing challenges.

The DOE weekly report showed a large crude oil inventory and a tick up in product demand that helped limit the selling in Thursday’s session, just as it was beginning to snowball. The crude decline was driven almost entirely by a large increase in exports of more than 1.2 million barrels/day, while refinery runs were close to flat (up just 26mb/day) on the week. With refinery runs estimated to be down 20% or more this week, shipping lanes frozen and Permian oil output estimated to be down 40% or more, we should see some record setting figures in next week’s report.

The EIA published a closer look at the supply & demand of electricity in Texas over the past week, detailing how almost all sources of power in the state saw output reduced right as demand was peaking. The charts they provided are a stark reminder of the challenges each form of electricity generation faces, and suggests the lofty plans to run all cars on electric power in the next 20 years is going to be easier said than done.

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

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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.