Fuel Markets Tighten Despite Stable Crude Supply

Energy markets continue to climb higher Wednesday as the war and weather threats to the supply chain continue to spread. While crude oil prices are holding near 6 week highs following 11 straight days of attacks between the U.S. and Iran, gasoline and diesel prices are trading at 3 month highs, shining a light on the global shortage of refining capacity that’s outpacing any shortages of crude oil.

While diesel continues to hold a lofty premium to gasoline, and has led the way in terms of volatility since the Iran war began, gasoline margins are quietly approaching record highs for refiners despite the EPA waivers on RVP, RFG, Butane and E15 blending this summer in an attempt to ease supply constraints. RBOB Futures prices are holding near a 10 week high today, touching $3.4800 overnight, and the recent strength in both crack and time spreads highlights the challenges the market is facing with demand holding relatively steady this summer despite elevated retail values.

Three Saudi Oil tankers reportedly made a U-Turn in the Red Sea Tuesday, apparently in response to the Houthi threat to attack any of their vessels moving through the region. Unlike ships in the Persian Gulf, those tankers aren’t completely trapped as they can offload into the SUMED pipeline that moves oil from the Red Sea to the Mediterranean, but the VLCC size (~2 million barrel capacity) ships can’t fit through the Suez Canal (which accommodates “Aframax” size ships of around 750,000 barrel capacity) so it will add time and extra steps to move that oil around the latest blockade attempt.

Bertha’s path has shifted slightly to the south in the past 24 hours, which is good news for Louisiana refiners, but may be bad news for Texas as the storm has more time over water as it moves West. The storm is currently forecast to make landfall near Galveston Thursday afternoon putting Marathon’s giant 630mb/day Galveston Bay refinery and Valero’s 260mb/day Texas City plant directly in its path. The good news is that the storm is still staying close enough to land and moving forward quickly enough that forecasts do not expect it to blow up into a hurricane before moving inland Friday so while it will still pose a flooding and power outage risk, the odds of a widespread disruption remain minimal.

Mexico continues to struggle with operating its refineries with 2 different fires at 2 different facilities to start the week. Pemex is reporting that neither the leak and fire at its new 340mb/day Dos Bocas facility, or the flood-induced fire at the 220mb Salamanca facility will materially impact operations, but adds to the long string of issues at their facilities. The country has long underachieved in its refining network for a variety of reasons, and consistently runs at less than 50% of nameplate capacity vs the U.S. that averages around 90%. This phenomenon is a huge reason why Mexico remains the primary importer of U.S. gasoline, despite so many claims by the Mexican government of being self sufficient in its energy needs.

There was a fire reported at a building owned by Cenovus adjacent to its Toledo OH refinery overnight, but operations at the refinery were said not to be impacted by the event.