Lack Of Enthusiasm Suggests Market Is Waiting For Outcome Of US And China Negotiations

Energy markets were trading modestly higher to start Tuesday’s trading, after a mixed Monday session, but gave up most of their gains as of 8am central. ULSD futures are trading higher for a 3rd straight day adding a whopping nickel after reaching multi-month lows last week. The lack of enthusiasm suggests the market is in a bit of wait and see mode before U.S. and Chinese negotiators meet and try to hash out a deal to prevent an escalation in the wars between the world’s two largest economies.

Is it contagious? Explosions rocked two European refineries Monday, the 165mb/day Danube refinery in Hungary and the 50mb/day Petrotel-Lukoil refinery in Romania. While no details are yet confirmed on the cause of either fire, the Romanian plant is Russian owned, and Hungary is one of the few European countries bucking the trend of purchasing Russian fuel – and is set to host the next meeting between the U.S. and Russian Presidents – so there’s plenty of speculation that these upsets were sabotage and not just a typical refinery upset.

The new gold rush? Kinder Morgan and P66 announced an open season for a newly proposed pipeline that would bring refined products along existing right of ways from P66 refineries in St. Louis, Oklahoma and the TX panhandle to Phoenix and California. This new proposal comes just a month after Magellan’s parent ONEOK announced an open season for the “Sun Belt Connector” to link up existing lines in Texas and Oklahoma to Phoenix as the industry races to replace what it clearly expects to be a shortage of supplies from the West Coast as California’s refineries shut down.

P66 reported an upset at its 149mb/day Borger TX refinery that occurred Sunday afternoon, adding to the rash of weekend refinery hiccups in TX that impacted 2 large facilities on the Gulf Coast, and both refineries in the panhandle. The fact that the Borger facility was proposed to be an origin point for the new “Western Gateway” on the same day this upset was reported may seem ironic, although it can’t be completely unexpected given the plant’s status as a TCEQ frequent flier.

The push to push more barrels west isn’t just about California however, as Midwestern refineries have struggled for years to find homes for their excess barrels since their land-locked status removes most export options enjoyed by their coastal competitors. With Canadian crude discounts still holding in double digits as the country continues to produce oil at record levels limited only by its capacity to move that oil to market, MidCon refiners have plenty of incentive to continue to run their plants near capacity even though their local markets don’t need the fuel, making an outlet like Phoenix more attractive, although it seems unlikely that both of these projects will be completed at the same time.

The Citgo saga drags on as one of the previously “winning” bidders Gold Reserve is accusing court advisors of taking $170 million in fees from affiliates of Amber Energy, who was recommended to be the winner of the auction after a revision by the court officer. The latest motions filed Monday request a temporary stay on all decisions in the case while the disqualifying motions are reviewed, suggesting a resolution in the process that’s already gone on for 2 years may still take a while. A report Friday from Hedgeweek suggested that if Amber Energy (backed by activist investor Elliott Management) takes over, the company will undergo a drastic restructuring, while if Dalinar Energy (backed by Gold Reserve) wins the company is more likely to maintain the status quo.

The IMO – The U.N.’s shipping agency – voted to postpone a decision on setting a global carbon price for shipping for a year after threats from the U.S. President to levy tariffs on countries that supported the idea. Alternative fuel advocates are saying that delay will hurt investments in a variety of potential clean fuels ranging from traditional biofuels to hydrogen and ammonia and port electrification, while detractors say the program is nothing more than a scam.

The EIA reported that US natural gas exports to Mexico have reached a new record high, despite ongoing Mexican claims that it will soon become energy independent. The vast majority of those exports flowed from Texas with new pipeline options and LNG export facilities expanding their reach.