Rash Of Refinery And Pipeline Issues Have Bidding Strong Despite Energy Futures Slump

Energy futures are tumbling Friday, marking a 3rd straight day of losses that have nearly wiped out Tuesday’s huge gains. RBOB futures are leading the slide this morning down more than 5 cents, while ULSD futures are down around 4 cents for the day and 10 cents from Wednesday’s high. While futures have been slumping ever since the Tuesday spike, we’re seeing strong bidding in several spot markets due to a rash of refinery and pipeline issues.

New York harbor gasoline basis remains elevated with trades around the 30 cent premium levels seen again on Thursday, keeping a bit of an extreme backwardation in values that will be wiped out in 10 days when terminals in the region flip to winter grade sales. Adding to the short-term squeeze on gasoline supplies in the Atlantic basin are reports that the Dangote refinery, which had just sent its first gasoline cargo to the U.S., was forced to take its 200mb/day FCC unit offline for at least 2 weeks of unplanned repairs.

Los Angeles CARBOB values jumped to their biggest premium since May at some 50 cents over October RBOB futures, while San Francisco values aren’t far behind at a 45 cent premium as a pair of refinery upsets earlier in the week, and the start of the operational wind-down at P66 Wilmington coincide with the annual end-of-summer RVP squeeze that has brought premiums north of $1/gallon in the past few years.

It’s not just California facing supply shortages: The Olympic pipeline that runs south from refineries in Washington state to Portland is reportedly down for at least 2 days for unplanned repairs. That news sent PNW basis values soaring with both products now commanding the highest premiums in the nation around 65 cents for gasoline and 45 cents for diesel and creating a slew of terminal outages.

In addition to the big basis rallies in several spot markets, refinery hiccups in the southwestern U.S. are pushing rack spreads in New Mexico and some West Texas markets to their highest levels of the year, albeit a far cry from the spreads we were accustomed to seeing years ago before new pipeline and terminal supply options saturated the area.

BLS Irony: A month after an ugly revision in payroll figures prompted the US President to fire the head of the government statistics group, the agency reported technical difficulties prior to releasing another ugly job report. The August payroll estimated that only 22,000 jobs were created in the U.S., while the June and July estimates were revised lower by 21,000 jobs, which means the new boss of counting jobs believes only 1,000 total new positions were created in the country over the past 3 months. The headline unemployment rate ticked up 1 tenth in August to 4.3% while the less-manipulated U-6 rate ticked up 2 tenths to 8.1%. That bad news for the labor market seems to have spilled over into the early negative sentiment for gasoline prices but may end up being good news for stocks as it all but ensures the FED will be forced to begin its rate cuts sooner rather than later.

Bad News: There’s a 90% chance that a new storm gets named in the next few days and it’s heading into warm Caribbean waters where it very well might explode into a major hurricane.

Good News: The early forecast models (courtesy of your friends at weathernerds.org) suggest the storm should hook north next week and not get into the Gulf where it could become a major supply threat. There still may be some east coast impacts however so it will be worth watching for at least a few more days.

Ugly News? Accuweather forecasters continue to wave warning flags that the back half of September is shaping up to be very busy with storm activity, with refinery row along the Gulf Coast, the Florida Panhandle, and North Carolina all highlighted as potential landing zones for those potential major storms.

Notes from the DOE’s weekly status report: See charts attached.

Crude added almost 2.5mm barrels with an uptick in imports as demand fell. Total refinery runs had little to no impact on crude balances but did show some larger moves at the PADD level. PADD 1 kicked up to a new seasonal high and has held above the 5-year range over the past month despite the hiccups at P66’s Bayway refinery, which was reported to have resumed planned run rates Wednesday this week. PADD 2 has seen back-to-back weeks of declines in the 140kbd range but are still holding above their 5-year average for the time being. BP Whiting was down last week due to flooding but has since restarted; however, they have a planned 45 days of maintenance scheduled for the last week of September that will likely contribute to further reductions in run rates.

Diesel inventories built on lowered exports and demand. Stocks remain generally low across the country except in PADD 5 where traditional diesel had a healthy increase but saw almost a million barrels of renewable diesel added with the EIA’s release of updated monthly figures from June. With the two products combined, PADD 5 diesel is a little over 2mm barrels above its 5-year seasonal range. RD built by 1.281mm barrels across the country with PADD’s 3 & 5 making up the bulk of that increase.

Gasoline stocks dropped almost 4mm barrels with significantly lowered imports coupled with an even larger increase in exports. Again, PADD 5 is the lone region holding above average inventories, mirroring year ago levels which make up the high end of the seasonal 5-year range.