Fuel Markets Spike Ahead Of Major US Winter Storm

Diesel prices are off to the races again Wednesday, adding another 7 cents/gallon (3%) on top of the 10 cent gains they earned yesterday. The rest of the petroleum complex is getting dragged along for the ride, as has so far ignored the weakness in global equity and bond markets.

ULSD futures are once again following the lead of Natural Gas futures which are up another 23 percent so far today and are up more than 55 percent for the week. Nearly half of the U.S. population is facing a major winter storm with severe icing across 9 states in the Southeast that don’t handle the cold well, and severe cold lasting a week for states further north.

While Texas has activated its Emergency Response Program to try and prevent a repeat of the debacle of Winter storm Uri in 2021, the major refineries along the Gulf Coast should be spared as temperatures are only expected to dip below freezing for a few hours, and only rain is currently forecast compared to areas further north that will have a few days below freezing and significant ice. It’s clear this storm system is a major threat, but given the severity and duration forecast, it should not be nearly the impact of what we saw from Winter Storm Uri 5 years ago when essentially every refinery in the state was knocked offline.

Smaller inland refiners like Delek’s Tyler and Big Spring TX and El Dorado AR facilities, along with Calumet’s Shreveport refinery do all appear to be in the middle of the severe ice forecast so upsets at those facilities from power loss or operating units freezing are certainly possible. The Valero and P66 TX Panhandle refineries aren’t in the severe forecast cone for ice but will have to fend off cold temperatures over the weekend. Those facilities are frequent fliers on the TCEQ flaring reports and have a tendency to break down if someone sneezes, so operational upsets are certainly possible there as well.

Other refiners across the Midwest and Northeast are also susceptible to upsets from this storm, but since those facilities are built for cold weather and those regions get more snow than ice, the potential impacts at this point appear to be less likely.

Coincidentally, several of the small refineries in this storm’s path have been big beneficiaries of the EPA’s small refinery exemptions to the Renewable Fuel Standard granted over the past year that have saved the facilities hundreds of millions of dollars according to their earnings reports. Late last week the API came to an agreement with biofuel lobbying groups to change the SRE program to only apply to companies with total capacity of 75mb/day or less across their network. That would mean companies like Delek would no longer qualify for the exemptions, while those that do would automatically qualify and not have to apply for the 75% exemption every year.

In exchange, the biofuel groups will get federal approval for year-round E15 sales. Now that the two competition industry lobbies have agreed, all that’s needed is one minor detail of congress passing the bill.

The weekly inventory reports are delayed a day this week due to the MLK Holiday.