Huge Draws In Refined Product Inventories

Market TalkWednesday, Mar 3 2021
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The four-month-old bullish trend that’s nearly doubled prices for oil and refined products is coming under pressure this week, but so far buyers have been willing to step in each time the chart support is tested. We saw another attempted selloff overnight that pushed WTI below $60, only to see another recovery this morning. This is similar to the back and forth pattern we saw Tuesday morning, which turned into a wave of selling just before the close in the afternoon.    

If the bullish trend line finally breaks, we could easily see a $8-10 drop in oil prices and 20-25 cent drop in products over the next month in what could be considered nothing more than an ordinary correction of a major bull market move. If the trend holds however, there’s still a decent fundamental argument for products to rally above $2 this spring and for oil to test $70.

The API’s weekly report was said to show huge draws in refined product inventories last week, as demand recovered faster from the Polar plunge than refineries. Both gasoline and diesel inventories were estimated to be down by more than 9 million barrels/day according to the reports, while crude supplies increased by more than seven million barrels as plants were struggling to restart their processing units. The DOE’s weekly report will be out at its normal time this morning.

Those inventory drawdowns are tangible in markets across the South West and Mid Continent regions, with basis values and rack spreads continuing to spike in several markets this week, with Group 3 ULSD continuing to find itself in the most unusual position as the most expensive diesel in the country, trading at a 20+ cent premium to futures this week. (Charts below) The near term supply situation is getting worse across parts of Texas and the Southwest as refiners continue to struggle with lingering damage that’s slowing restart attempts, and short term outages continue to pop up in New Mexico, Texas, Oklahoma, Arkansas and Louisiana.

For the most part, outages have been limited to diesel and premium gasoline, while regular grades are benefitting from the temporary RVP waivers and relative ease of production they bring. Coastal markets don’t seem to be feeling the squeeze, even though allocations are still not as wide-open as they might normally be this time of year. One thing to watch out for in the coming weeks is premium gasoline supply, which often runs out during the RVP transition given its relatively low demand, and promises to be even more of a challenge this year with refinery output slipping.

RIN prices reached their highest levels since 2013 in Tuesday’s session on the back of stronger grain prices, and expectations for stricter standards to come from the new administration.   

The House Committee on Energy and Commerce introduced a new bill that intends to set the U.S. on a path towards zero emissions by 2050, in accordance with the Paris climate agreement. The thousand-plus page bill covers a wide variety of topics, and essentially all sectors of the energy industry, including some tweaks to the RFS. Grant programs to fund various waste-to-fuel programs will be a key topic as the race to produce renewables is setting up a feedstock shortage in the coming years. The bill also includes provisions that refineries requesting exemptions from the Renewable Fuel Standard must share their information publicly. 

Meanwhile, the API is reportedly preparing a statement to endorse setting carbon emissions pricing as a way to set a viable economic path towards reaching the Paris agreement. Needless to say, the oil industry group’s plan is expected to look quite a bit different than the one being floated in the House.

OPEC & Friends hold their official meeting tomorrow, so expect the rumor mill to be cranked up over the next 24 hours and keep the oil & product markets on edge. 

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

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Pivotal Week For Price Action
Market TalkThursday, Mar 28 2024

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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Market TalkWednesday, Mar 27 2024

Week 12 - US DOE Inventory Recap

Pivotal Week For Price Action
Market TalkWednesday, Mar 27 2024

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.