Hurricane Beryl Has Energy Markets On Edge

Market TalkTuesday, Jul 2 2024
Pivotal Week For Price Action

Hurricane Beryl has energy markets on edge, helping to push refined product futures up more than a dime to start the week while oil prices reach 2-month highs. In addition to the storm concerns, there seems to be more short covering at play as prices have punched through technical resistance, and bullish seasonal factors like a record setting travel week, and traders’ tendency to not want to go short into a holiday weekend, even without a major hurricane threat.

If you want to scare people you tell them the facts that Hurricane Beryl is now a category 5 storm with sustained winds of 165mph, and forecast models point it right at Houston. Those are both true, but they omit the details that forecast models also show the storm weakening to tropical storm strength as it crosses land and moves into the Gulf of Mexico over the weekend. With a full week or until this storm reaches the US, there’s plenty of time for the forecasts to change, but at this point, the storm’s path looks about as bad as possible heading towards the origin point for the country’s largest pipeline systems and its largest refining clusters. The positives are the forecasts don’t expect this to be a major storm when it hits the US, and it’s predicted to move through relatively quickly as it heads north and east, compared to a storm like Harvey that stuck around for days. There is also a chance that the movement over Mexico interferes with the storm’s rotation enough that it can’t reform before hitting the US, but at this point, both the Euro and US official models have shifted its path back out over the Gulf of Mexico which means it should have time to re-form.

The storm’s path will also create extra drama for the holiday weekend as spot markets won’t be assessed, but futures will be trading, so it’s likely we could see big swings in futures prices Thursday and Friday that could force rack prices to change even though the spot markets won’t move until Monday, which sets the stage for a big price swing in either direction depending on the storm’s path.

In Monday’s session we saw gasoline basis values in the USGC tick higher as traders started to cover short positions and prepare for the potential of shut in production. Adding those basis gains to the big rally in futures pushed gasoline wholesale prices to their highest levels since April. Diesel basis values saw a slight decline Monday which may reflect the fact that the storm’s path may also interfere with the export market in the coming week, which USGC refiners are dependent on to get rid of their excess supply.

In non-storm news, RIN values ticked up to a 6-month high Monday, with D4 and D6 values both trading close to $.59/RIN as it appears the production of renewables continues to slow after the furious pace of the past two years that left many markets grossly oversupplied and crushed their credit values. Shell announced it was halting construction on one of the world’s largest biofuel production facilities in Rotterdam after nearly 3 years of development. That facility was expected to be one of the world’s largest RD and SAF producers, but like we’ve seen from a half dozen others this year, simply can’t make ends meet without higher credit subsidy values to compete with lower cost fuel options.

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Market Talk Update 07.02.2024

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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.

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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.

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Pivotal Week For Price Action
Market TalkWednesday, Jul 17 2024

Week 28 - US DOE Inventory Recap