Entire Pipeline System Operational Again
Colonial pipeline initiated a full restart Wednesday afternoon, and Thursday confirmed that its entire pipeline system was operational again and all markets were receiving product. The pipeline is running 5.5 days behind on average. After numerous reports guessing that Colonial did not pay the hacker’s a ransom, new reports Thursday said they did, and that the ransom was relatively low because the hackers realized they’d outkicked their coverage on this deal.
It will take another week or two to put the physical supply disruption that started a week ago today in the rear view mirror, but the futures market seems to have already moved on to other things after giving back all of the price gains it had accumulated since the shutdown during Thursday’s trading.
While most of the focus this week has been on the East Coast, the real price action has been in the West Coast, as basis values have been hammered lower, bringing spot differentials for gasoline in LA to their lowest levels in a year. Rising gasoline production in Southern California may deserve some of the credit for the move, but inventories remain near the low end of the seasonal ranges, so it doesn’t appear to be the whole story.
The Mississippi river is to U.S. grain products as the Colonial pipeline is to refined fuels. The temporary shutdown of river traffic to address damage to the I-40 bridge in Memphis, which has stranded hundreds of barges, sparked a limit-down move in several grain contracts Wednesday. Similar to the Colonial shutdown, the impacts of this shutdown are expected to be short lived, but based on what we saw earlier this week that may not be enough to prevent hoarding of bourbon and frosted flakes. The shut down of river traffic could also cause some refined product tightness for the handful of terminals north of Memphis that are fed via barge from origin points south of the closure.
RIN values did see some relatively modest selling pressure as grain and fuel prices were both taking big steps lower, but given the 60 cent increases in the past month, a drop of a few cents hardly moves the needle. Given the dramatic increases, we won’t need to wait long to see if this selling is the start of the end for the upward trend, or if it’s just a speedbump on the move towards $2/RIN.
For the second time in 10 years, an attempt by Platts to buy OPIS has been rejected by regulators that don’t want to allow more pricing index manipulation monopolization by the companies.
Today’s interesting read: Why a review of the TX property tax code over the next 2 years may make refining expansion projects a challenge down the road.
Another change coming to the refining landscape: Soybeans are becoming the new crude oil.
Click here to download a PDF of today's TACenergy Market Talk.
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Energy Prices Up Over 2% Across The Board This Morning
Refined product futures traded in an 8-10 cent range yesterday with prompt heating oil settling up ~6 cents and RBOB ending up about flat. Oil prices clawed back some of the losses taken in the first two full trading days of the week, putting the price per barrel for US crude back over the $70 mark. Prices are up just over 2% across the board this morning, signifying confidence after the Senate passed the bipartisan debt ceiling bill last night.
The EIA reported crude oil inventories up 4.5 million barrels last week, aided by above-average imports, weakened demand, and a sizeable increase to their adjustment factor. The Strategic Petroleum Reserve continues to release weekly through June and the 355 million barrels remaining in the SPR is now at a low not seen since September 1983. Exports increased again on the week and continue to run well above last year’s record-setting levels through the front half of the year. Refinery runs and utilization rates have increased to their highest points this year, both sitting just above year-ago rates.
Diesel stocks continue to hover around the low end of the 5-year range set in 2022, reporting a build of about half of what yesterday’s API data showed. Most PADDs saw modest increases last week but all are sitting far below average levels. Distillate imports show 3 weeks of growth trending along the seasonal average line, while 3.7 million barrels leaving the US last week made it the largest increase in exports for the year. Gasoline inventories reported a small decline on the week, also being affected by the largest jump in exports this year, leaving it under the 5-year range for the 11th consecutive week. Demand for both products dwindled last week; however, gas is still comfortably above average despite the drop.
The sentiment surrounding OPEC+’s upcoming meeting is they’re not likely to extend oil supply cuts, despite prices falling early in the week. OPEC+ is responsible for a significant portion of global crude oil production and its policy decisions can have a major impact on prices. Some members of OPEC+ have voluntarily cut production since April due to a waning economic outlook, but the group is not expected to take further action next week.
Click here to download a PDF of today's TACenergy Market Talk
Prices Are Mixed This Morning As The Potential Halt In U.S. Interest Rate Hikes
Bearish headlines pushed refined products and crude futures down again yesterday. Prompt RBOB closed the month at $2.5599 and HO at $2.2596 with WTI dropping another $1.37 to $68.09 and Brent losing 88 cents. Prices are mixed this morning as the potential halt in U.S. interest rate hikes and the House passing of the US debt ceiling bill balanced the impact of rising inventories and mixed demand signals from China.
The American Petroleum Institute reported crude builds of 5.2 million barrels countering expectations of a draw. Likewise, refined product inventories missed expectations and were also reported to be up last week with gasoline adding 1.891 million barrels and diesel stocks rising 1.849 million barrels. The market briefly attempted a push higher but ultimately settled with losses following the reported supply increases implying weaker than anticipated demand. The EIA will publish its report at 10am this morning.
LyondellBasell announced plans yesterday to delay closing of their Houston refinery, originally scheduled to shut operations by the end of this year, through Q1 2025. The company “remains committed to ceasing operation of its oil refining business” but the 289,000 b/d facility remaining online longer than expected will likely have market watchers adjusting this capacity back into their balance estimates.
Side note: there is still an ongoing war between Russia and Ukraine. Two oil refineries located east of Russia's major oil export terminals were targeted by drone attacks. The Afipsky refinery’s 37,000 b/d crude distillation unit was struck yesterday, igniting a massive fire that was later extinguished while the other facility avoided any damage. The attacks are part of a series of intensified drone strikes on Russian oil pipelines. Refineries in Russia have been frequently targeted by drones since the start of the military operation in Ukraine in February 2022.