Hurricane Lee Stirring Up Buying Interest From Traders As It Could Threaten Demand Along the East Coast

Market TalkFriday, Sep 8 2023
Pivotal Week For Price Action

Refined product prices are rallying sharply this morning with both RBOB up 7 cents and ULSD up 9 in the early going as category 5 hurricane Lee looks like it will move too close for comfort along the East Coast next week. While forecast models keep this huge storm offshore as it moves past the major population centers along the coast, the slow movement and sheer size of the system make it seem inevitable that there will be disruptions to vessel traffic in and around the New York Harbor delivery hub, which seems to be stirring up buying interest from traders who aren’t willing to go short into the weekend with this type of threat looming.  The latest models also suggest that the Irving refinery in St John New Brunswick, which is a major importer to the Northeastern US, is still in the cone of uncertainty so a direct hit can’t yet be ruled out. 

In addition to the supply threats, the storm will have widespread impacts on demand along the East Coast as it moves slowly north next week. We’re already seeing some modest levels of prepping spurring more demand in the region, which could turn into all out panic buying if the forecast models move slightly west, and then we’ll see a big drop-off in demand as the storm passes as heavy rains are expected to hit the major population centers across the I95 corridor. The fall RVP transition adds another layer of complication to this event as retailers and terminals would normally try to run inventories down ahead of the move to winter-grade supply but will now be shifting gears and trying to fill up as the delays in vessel traffic will no doubt cause some terminal supply issues in the region which has been sitting on low inventory levels for most of the year.  

Away from the East Coast, gasoline inventories remain near the low end of the seasonal range for most markets according to the DOE’s weekly status report, and it’s no surprise to see premiums for CARBOB in California surge to close to $1/gallon premiums vs futures as those markets will continue trading 5.99lb RVP for a few more weeks even while the rest of the country shifts to winter grades. CARBOB differentials are still a far cry from the huge levels we saw last year that prompted a new state committee to monitor all trading activity, but there’s still time to see another big jump in values as summer barrels become scarce.  

The big surprise this week has come from the typically sleepy Group 3 market that saw gasoline differentials spike to $1/gallon premiums Thursday morning before trading around a 70-cent premium at days end.  A short squeeze on remaining summer gallons seems to be at play here with inventories on the Magellan system dropping nearly 1.5 million barrels (almost 20%) the past 2 weeks, and multiple refineries across the Midwest are preparing for planned fall maintenance, which takes incremental barrels off the market as well. Don’t worry about a gasoline shortage in the Midwest though, refiners continue to run at near-record rates, and we’ve already seen the EPA and state agencies issue RVP waivers in markets like Phoenix, El Paso and Florida in the past 2 weeks to deal with potential supply issues so a swipe of the pen could send those values tumbling in short order.

So far the threat of rolling blackouts in Texas does not appear to be causing refinery disruptions, with the only new report to TCEQ yesterday coming from the Valero McKee facility that experienced a hiccup while trying to restart one of its units that’s been offline for several weeks. Extreme heat has impacted several facilities over the past couple of months and capped output, but relief is on the way with a 30-degree temperature drop in the forecast next week, without even needing a hurricane to cool things down.

Tropical Storm Margot has formed behind Lee and is forecast to become a hurricane next week but will stay far out to sea in the Atlantic and not threaten land.

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Market Talk Update 09.08.2023

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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