Refined Products Retreat Amid Shifting War Signals And Weak Demand

Reversal Thursday is in effect with refined products seeing dime losses overnight after a strong showing to start the week. Reports of another Israel/Lebanon ceasefire (with the caveat that the guys fighting Israel have to stop fighting) is getting some of the credit for the price pullback, along with the U.S. House of Representatives voting to block the President’s ability to conduct more strikes.

In addition, the U.S. President is allegedly signaling that he doesn’t intend to return to all-out war with Iran with the caveat that Iran’s attacks don’t kill U.S. soldiers, which seems to be a step back from where we were this time yesterday when a return to war seemed imminent.

If you’re not buying the latest round of “don’t worry, it’ll be OK” headlines, you might also note that Iran is reportedly now parking a ship in the Strait of Hormuz with a tracking label of “IRGC Toll Collect”. While some doubt the validity of that transponder label, there is clear evidence that Iran’s toll booth system is taking more control of the shipping activity through the strait for now.

In addition to the war & peace headlines, reports that Iranian crude is now trading at a discount to Brent shows the power of China’s swing purchases and the unfortunate reality that falling demand is more likely to be the factor that balances the global market rather than a return to normal supply flows. See the chart and tables below for more detail on the Chinese demand swings.

Texas regulators have agreed to hear a legal challenge against Marathon’s 133mb/day El Paso refinery, a rare step in what is typically a routine renewal.

The 50mb/day Cenovus (FKA Husky) refinery in Superior Wisconsin was forced to shut a hydrotreater unit this week after a leak, and a pressure buildup that created a concerning rumbling across the community still leary of that plant after it exploded and forced an evacuation of large parts of the town in 2018. Rebuilding and repairing the refinery after that event took 5 years.

Human analysis of the DOE weekly report below. AI Analysis is attached along with the weekly charts. Note the refinery yield charts detailing how U.S. facilities have been able to step up their production of jet fuel, which is why U.S. inventories are holding above average levels while other parts of the world are desperate for supply.

Crude stocks drew across all PADDs except 5 as an upswing in imports was outweighed by a larger increase in already high export activity. Demand for refined products was also sidelined last week following the holiday weekend prior. U.S. inventories are now below the past two years and at a 5-year low, seasonally, when taking the SPR balance into account.

Refinery runs picked up in PADDs 2 & 4, both of which have jumped well above average over the past couple weeks, while the other three pulled back. Several PADD 3 refineries lost power in Corpus Christi but run rates held at seasonal highs with Exxon’s 585 mb/day Baytown facility resuming planned rates following scheduled maintenance. Both coasts slowed a bit with a small drop in PADD 1 and an unplanned shutdown at P66 Ferndale in PADD 5.

Diesel stocks bounced in every PADD, except 1, with a post-holiday drop in demand but all remain at very low levels, leaving the total U.S. at 20+ year lows. One bright spot, for PADD 5, is the monthly RD release for March shows an overall increase. Declines in every PADD were offset by the build in PADD 5, pushing total inventories there closer to the 5-year average vs. a seasonal 5-year low for petroleum-based diesel alone.

Gasoline stocks also built on decreased demand and imports increasing substantially over the past three weeks. PADD 1 increased significantly, receiving most of last week’s imports, but still lags behind the past two years. Most other PADDs sit at seasonal lows, leaving the total U.S. well under its 5-year range despite having broken a 15-week run of declining stock levels.

Jet stocks continue to hit fresh seasonal highs with production levels maintaining the same pace, particularly in PADD 2, to keep up increased demand and steadily high exports.