Refined Products Off To A Strong 2024 Start

Refined products are off to a strong start to 2024 with nickel gains in the early going after the largest refinery on the U.S. East Coast was forced to shut units due to an upset over the weekend, and another thwarted attack on a cargo ship in the Red Sea reminded markets that international shipping faces many challenges to start the year.

Energy News Today reported the P66 Bayway refinery was forced to shut its only crude unit after a fire Friday, with restart attempts expected this week suggesting the damage was not major.

A Reuters article noted at least 4 cargoes carrying distillates and jet fuel to Europe were diverting to take the long way around Africa, a sign this situation is far from over. Adding to the tension this morning, Iran announced it was sending a destroyer to the Red Sea which will no doubt complicate matters.

US oil producers pulled off quite the feat in 2023, increasing domestic output by more than 1 million barrels/day, despite the fact that drilling rigs dropped by more than 100 during the year, which helped ease concerns of global supply shortages and forced OPEC and friends to extend their output cuts to try and prop up prices. Of course, it seems to help that the EIA updated its accounting to classify some “other oil” as oil output, which was skewing the production figures lower for years, but efficiency gains are also a big factor in doing more with less. Baker Hughes reported an increase of 2 oil rigs drilling in the U.S. last week, bringing the total at the end of the year to 500, down from 621 a year earlier.     

Short covering in crude oil contracts continues to be a theme for money managers, with nearly 20,000 WTI and Brent shorts liquidated last week, pushing the net length held by large speculators higher for a 2nd week. The action in refined products was mixed, with ULSD contracts seeing new positions added on both the long and short side of the ledger, while RBOB saw all positions reduced last week. 

The Chevron refinery in Richmond CA experienced an upset over the weekend, leading to multiple air quality complaints. The upset seemed to be minor based on the company’s warning scale, but the San Francisco spot market was already on edge following multiple issues at the Martinez refinery last week. 

A major winter storm is forecast to sweep across the U.S. later this week and end the 2-year-old snow drought in the North East this weekend. 

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