Energy Prices Slide Despite Persistent Supply And Pricing Distortions

Energy markets are seeing another wave of heavy selling Friday, erasing two days of gains, as new reports of potential progress around the Strait of Hormuz have traders selling the rumor. The selling started overnight following social media claims from the U.S. President suggest more negotiations with Iran “could” be coming this weekend, while Israel and Hezbollah have agreed to a temporary ceasefire. The sell-off picked up steam just before 8am after Iran announced the Strait of Hormuz was fully open, which pushed ULSD futures down over 50 cents/gallon, while RBOB futures are down around 20 cents on the day.

The sellers seem to be shrugging off news that Iranian negotiators are saying they won’t accept another temporary cease fire and won’t give up uranium enrichment plans, or reports that Iranian negotiators are requiring escorts to prevent “unfortunate accidents” while they travel to and from the diplomatic venues.

Is anyone paying attention? We’re 16 days in, and still there hasn’t been a single bid or offer for CARB diesel in the SF spot market for April barrels. Despite active offers for May barrels some 35-45 cents cheaper, prompt RD prices trading 35-45 cents lower, rack prices posted 20-22 cents lower than spot, and neighboring markets trading 45-55 cents lower, the pricing agencies have stuck with their “see nothing, do nothing” stance and left their index prices alone at an inflated 75-80 cent premium to May futures. Eventually someone will step up to end the nonsense but there’s not yet any indication that will happen until May pipeline cycles begin trading next week.

While the 2 remaining crude oil refiners in the region have no incentive to make offers to lower that index, the 2 RD refiners in the area (which were converted in the past few years) both reported flaring to Contra Costa officials in the past 48 hours. Marathon Martinez reported level 1 flaring Wednesday and Thursday mornings, while P66 Rodeo reported level 1 flaring Thursday afternoon.

The LA Spot market meanwhile made its roll to trade against June futures and is now priced around 60 cents below the obsolete San Francisco values, despite reports to the AQMD that PBF would be performing a maintenance for a couple days at its 166mb/day Torrance refinery that wasn’t previously scheduled due to an “essential operational need”.

Texas Gulf Coast refiners seem to be in the catbird seat (besides the one that blew up in March anyway) with ample crude supplies and waterborne optionality giving them the chance to sell fuel into either the Atlantic or Pacific basins, with near-record profits expected for some in March and April. There are storm clouds on the horizon for one select group of facilities, caused by a lack of storm clouds in the Corpus Christi area. Multiple reports in the past few weeks suggest that the refiners in the area, who become the primary suppliers to the San Antonio, Austin and DFW metros, may be forced to cut run rates due to a lack of fresh water caused by ongoing severe drought. Corpus has also been the fastest growing major port in the U.S. as companies raced to bring more U.S. energy supplies to international markets, but now efforts to mitigate the water shortage have the region caught in a “political circus”.

Speaking of growing exports: The EIA Thursday highlighted the ongoing growth in U.S. Natural Gas exports, with more LNG facilities set to come online in the next 18 months, and more pipeline capacity bringing more gas to Mexico. The note also highlights that Canada is set to bring 2 LNG export facilities online on its west coast, which won’t and can’t come fast enough for Asian markets currently struggling to get by.