Fuel Prices And Renewable Credits Face Whiplash
It’s been a busy month worth of trading this week as fuel prices and renewable credits all face a bout of whiplash. Gasoline and diesel contract managed to wipe out Tuesday’s big losses that approached 10 cents in many markets with even larger gains Wednesday, only to start Thursday’s session dropping back 5-6 cents.
The blockage of the Suez canal got way too much credit for Wednesday’s big price rally, as the issue is expected to be cleared by the weekend, and should not have any long term impacts. If the event was the main driver of the price action during the rally, we would have seen time spreads strengthen, reflecting the short term supply crunch, which just didn’t happen as prices were up big across the forward curve. Want another reason why that probably wasn’t why prices rallied yesterday? The ship is still stuck this morning and prices are down 3%.
The DOE’s weekly report showed that the great refinery recovery continues, but Gulf Coast (PADD 3) runs are still 800mb/day below where they were prior to the polar plunge. Plants in other regions are taking advantage of the disruption, with East & West Coast refiners increasing rates to their highest levels in a year to capitalize on the (recently) rare window to make healthy margins caused by the widespread outages and slow recovery.
Gasoline imports remain nearly 2X normal levels for this time of year as replacement barrels for those lost from downed refineries are arriving. That phenomenon may help explain some of the strength in RIN pricing over the past month as those imported barrels require purchasing a full slate of RIN codes to comply with the RFS.
Demand estimates from the DOE were sluggish last week – and certainly didn’t help explain the big price jump following the report – with distillate consumption dropping sharply over the past two weeks while gasoline has stagnated.
An EIA report this morning highlights the vastly different refining landscape in the U.S. – which for decades has been the world leader in refining – and China, which surpassed U.S. output for most of 2020.
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.