Large Plants Shutter After Polar Plunge

Market TalkTuesday, Mar 2 2021
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It’s a quiet morning in energy markets, after a busy overnight session had petroleum futures on the verge of breaking their four-month-long bullish trend that has nearly doubled the value of some contracts. 

Refined products dropped more than three cents overnight, and WTI dropped back below $60, but all three contracts were able to bounce and are trading slightly higher this morning. The overnight sell-off just about closed the chart gap left behind by the transition from winter to summer spec gasoline for the RBOB contract, and ULSD survived its latest test of its bullish trend line, marking the first time since the end of January we’ve seen that weekly trend face a serious test.   

The refinery restarts are continuing with some of the largest plants shuttered by the polar plunge coming back online in the past several days. While those restarts are helping alleviate concerns of long term outages, it will still be weeks before we see production return to pre-storm levels, and several reported hiccups are keeping supplies tight across Texas and neighboring states for the time being. The chart below shows the dramatic change in West Texas where diesel supplies went from feast to famine since the cold snap.


Midwestern diesel values continue to spike with Group 3 values reaching their highest levels in more than four years this week as refiners scramble to replace barrels lost due to downtime of their plants, the Explorer pipeline shutting for nearly a week, or the rush to resupply Texas. It’s highly unusual for Group 3 prices to be the most expensive in the country, and is unheard of for February. The only times we’ve seen anything like this is during the fall harvest demand spike.  The best cure for high prices is high prices, and we’re already seeing deliveries into the region tick up as shippers capture a rare winter arbitrage, so that price spike may only last another few days.

Things are getting personal in the public argument between refiners CVR and Delek. CVR (fka Coffeyville resources) as a major shareholder in Delek has been taking an activist stance for some time, and now this week publically questioned the CEO of Delek’s compensation package.  Not going down without a fight, Delek responded that its performance over the past five years was more than 3X that of CVR and would reply to their request in due course. Does any of this matter to the supply network? Probably not unless CVR gets control of Delek and puts some of its refineries on the chopping block.

The latest in a growing list of refinery unit conversions: Shell announced plans to upgrade its hydrogen plant in Germany to help produce more power-to-liquid aviation fuel. Here’s why oil executives think demand for crude will continue to grow despite the rapidly changing refinery landscape.

Today’s interesting read: Why America needs more mines if its electric dreams are to become reality, and why that’s a huge problem for the “Green” energy movement. 

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

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Charts Continue To Favor A Push Towards The $3 Mark For Gasoline, While Diesel Prices May Need To Be Dragged Along For The Ride

Energy prices are rallying once again with the expected Iranian attack on Israel over the weekend appearing to be the catalyst for the move. RBOB gasoline futures are leading the way once again, trading up more than a nickel on the day to reach a fresh 7 month high at $2.8280. Charts continue to favor a push towards the $3 mark for gasoline, while diesel prices may need to be dragged along for the ride.

So far it appears that Motiva Pt. Arthur is the only refinery that experienced a noteworthy upset from the storms that swept across the southern half of the country this week. Those storms also delayed the first round of the Masters, which matters more to most traders this week than the refinery upset.

Chevron’s El Segundo refinery in the LA-area reported an unplanned flaring event Thursday, but the big moves once again came from the San Francisco spot market that saw diesel prices rally sharply to 25 cent premiums to futures. The Bay Area now commands the highest prices for spot gasoline and diesel as the conversion of 1 out of the 4 remaining refineries to renewable output is not-surprisingly creating disruptions in the supply chain.

RIN values dropped back below the 50-cent mark, after the recovery rally ran out of steam last week. The EPA is facing numerous legal challenges on the RFS and other policies, and now half of the US states are challenging the agency’s new rule restricting soot emissions. That lack of clarity on what the law actually is or may be is having widespread impacts on environmental credits around the world and makes enforcement of such policies a bit of a joke. Speaking of which, the EPA did just fine a South Carolina company $2.8 million and require that it buy and retire 9 million RINs for improper reporting from 2013-2019. The cost of those RINs now is about 1/3 of what it was this time last year, so slow playing the process definitely appears to have paid off in this case.

The IEA continues to do its best to downplay global demand for petroleum, once again reducing its economic outlook in its Monthly Report even though the EIA and OPEC continue to show growth, and the IEA’s own data shows “Robust” activity in the first quarter of the year. The IEA has come under fire from US lawmakers for changing its priorities from promoting energy security, to becoming a cheerleader for energy transition at the expense of reality.

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

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Market TalkThursday, Apr 11 2024

Diesel Prices Continue To Be The Weak Link In The Energy Chain

Energy prices are ticking modestly lower this morning, despite warnings from the US that an Iranian attack on Israeli interest is “imminent” and reports of weather induced refinery outages, as demand fears seem to be outweighing supply fears temporarily. Diesel prices continue to be the weak link in the energy chain with both the DOE and OPEC reports giving the diesel bears reason to believe lower prices are coming.

The March PPI report showed a lower inflation reading for producers than the Consumer Price Index report, leading to an immediate bounce in equity futures after the big wave of selling we saw yesterday. To put the CPI impact in perspective, a week ago Fed Fund futures were pricing in an 80% chance of an interest rate cut by the FED’s July 31 meeting, and today those odds have shrunk to 40% according to the CME’s FedWatch tool.

OPEC’s monthly oil market report held a steady outlook for economic growth and oil demand from last month’s report, noting the healthy momentum of economic activity in the US. The cartel’s outlook also highlighted significant product stock increases last month that weighed heavily on refining margins, particularly for diesel. Given the US focus on ULSD futures that are deliverable on the East Coast, which continues to have relatively tight supply for diesel, it’s easy to overlook how quickly Asian markets have gotten long on distillates unless of course you’re struggling through the slog of excess supply in numerous west coast markets these days. The OPEC report noted this in a few different ways, including a 33% decline in Chinese product exports as the region simply no longer needs its excess. The cartel’s oil output held steady during March with only small changes among the countries as they hold to their output cut agreements.

If you believe the DOE’s diesel demand estimates, there’s reason to be concerned about domestic consumption after a 2nd straight week of big declines. The current estimate below 3 million barrels/day is something we typically only see the week after Christmas when many businesses shut their doors. We know the DOE’s figures are missing about 5% of total demand due to Renewable Diesel not being included in the weekly stats, and it’s common to see a drop the week after a holiday, but to lose more than a million barrels/day of consumption in just 2 weeks will keep some refiners on edge.

Most PADDs continue to follow their seasonal trends on gasoline with 1 and 2 still in their normal draw down period, while PADD 3 is rebuilding inventories faster than normal following the transition to summer grade products. That rapid influx of inventory in PADD 3 despite robust export activity helps explain the spike in premiums to ship barrels north on Colonial over the past 2 weeks. Gasoline also saw a sizeable drop in its weekly demand estimate, but given the holiday hangover effect, and the fact that it’s in line with the past 2 years, there’s not as much to be concerned about with that figure. While most of the activity happens in PADDs 1-3, the biggest disconnect is coming in PADDs 4 and 5, with gasoline prices in some Colorado markets being sold 50 cents or more below futures, while prices in some California markets are approaching 90 cents above futures.

Severe weather sweeping across the southern US knocked several units offline at Motiva’s Pt Arthur plant (the country’s largest refinery) Wednesday, and it seems likely that Louisiana refineries will see some disruption from the storm that spawned tornadoes close to the Mississippi River refining hub. So far cash markets haven’t reacted much, but they’ll probably need more time to see what damage may have occurred.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

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Week 14 - US DOE Inventory Recap