Impacts To Fuel Supply Network Are Significant But Largely Contained 

Market TalkWednesday, Sep 1 2021
Pivotal Week For Price Action

A month known for volatility is off to a quiet start for energy and equity markets. While damage assessments are still in the early stages, the price action in futures and cash markets continues to suggest that the impacts to the fuel supply network are significant but largely contained. 

Don’t adjust your dials: The winter-spec October RBOB contract took over the prompt position for futures today, some 14 cents below where the summer-spec September contract left off. If your local market hadn’t already transitioned to September pipeline cycles last week, you’ll notice a big jump in basis values today that will offset the drop in the futures price until the terminals start to transition to winter grades in 2 weeks. What does that mean? It means your local prices are down only about 40 points on the day so far, not 14 cents.

OPEC and Friends are scheduled to meet today, and reports suggest the cartel will not make any changes to its output plan this time around.  

The API reported a build in gasoline stocks of more than 2.7 million barrels, while crude oil and distillates both had draws of roughly 4 million and 2 million barrels respectively. That report probably explains why RBOB has held modestly in the red overnight, while WTI and ULSD see small gains. The DOE’s version of the weekly statistics is due out at its normal time this morning.  Today’s report may have less influence than normal as the data was collected before nearly all Gulf of Mexico oil production was shut, along with more than 2 million barrels/day of refining capacity. Following most hurricanes that hit the area, we typically see a sharp rebound in production that creates chart stalactites, but it could be a little different this time around as damage to Port Fourchon, which moves roughly 90% of offshore oil, could prevent some of those wells from coming back online as quickly as they would if the oil had a place to go.

A lack of power continues to slow the process of getting refineries and pipelines back online, although progress is being made on all fronts. The Plantation pipeline remains shut near its origin but they did announce a plan to attempt a restart later today, which should ease concerns about the product shortages spreading to more states along the East Coast. The port of Pascagoula is also reported to be back in operation with restrictions today, which should help get some product moving to Florida.

Transportation challenges are more painful than ever during this event as the long hauls that save the day in many supply disruptions simply aren’t an option in most cases due to a lack of drivers. It’s also showing up as a challenge with some terminals in the area running out of ethanol, which prevents them from selling the gasoline they have on hand. 

As Ida now targets the East Coast with flooding rains, Tropical Storm Larry has formed off the coast of Africa. This storm is predicted to become a major hurricane over the next week, but just like his predecessors Julian and Kate, he’s predicted to stay far out to sea and not pose a threat to the US.

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Market Update 9.1.21

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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