Refined Products Trading Down More Than A Dime As Demand Fears Rapidly Replace Supply Fears

Refined products are trading down more than a dime from Thursday morning’s highs, wiping out the latest Middle East violence bounce, as supply fears have rapidly been replaced by demand fears as slowing manufacturing and consumer spending are both hammering stock markets. There also seems to be a bit of buy the rumor, sell the news, mixed in now that central banks are foreshadowing more rate cuts that have been the source of hope for equities for more than a year, particularly given the weakness in labor markets encouraging the easing.

Speaking of foreshadowing, OPEC & Friends did their best FOMC impression Thursday, holding their official output quotas steady but implying they could increase output in the months ahead. The big reversal in stock prices Thursday happened at about the same time as the OPEC news broke, so it’s really impossible to say which had the bigger influence on energy prices selling off, but both were likely major contributing factors.

The July payroll report showed an estimated increase of just 114,000 jobs in the U.S., while May and June estimates were both revised lower. The official unemployment rate ticked higher to 4.3% while the more inclusive U6 unemployment rate jumped 4-tenths to 7.8%. Unlike prior months where bad news was good news for markets desperate for a rate increase, this weak report has been met with immediate selling as pessimism is clearly now taking hold.

The NHC is now giving 90% odds of development to the storm system that’s been creeping toward Florida all week. While the forecast track suggests Tampa Bay may feel the brunt of the storm early next week, the Euro and GFS models are only projecting winds in the 30-40 miles/hour range at this point, so it may not even reach tropical storm status. The models are also fairly consistent on the path that keeps it east of oil production and refining assets in the Gulf of Mexico but will be a demand hindrance to large parts of Florida and the Southeast as it dumps heavy rains for several days.

ExxonMobil reported another big quarter with more than $9 billion in earnings as its acquisition of Pioneer Resources and increasing oil production in Guyana both helped offset lower refining margins which drove a drop of more than $1 billion in U.S. product earnings vs a year ago. Exxon also touted its big investments in “virtually” carbon-free hydrogen, and lithium mining which is certainly not carbon-free but does support the advancement of EVs, and Carbon capture.

Cenovus reported a strong quarter thanks to increased production in its Canadian oil and gas fields, while U.S. refinery runs increased over a year ago, which once again shows why the middle of the country has been dealing with excess supply for most of the year. That increase in refinery run rates allowed Cenovus to buck the trend of other U.S. refiners by actually showing a year-on-year increase in refining earnings. Cenovus did not issue its 2023 ESG report due to “significant uncertainty” caused by changes to Canada’s environmental disclosure standards.

PBF continues to follow the trend of weak refining and renewable margins in Q2, but unlike some of its biggest competitors, they don’t have the upstream production to offset those losses. The company reported a net loss of nearly $75 million during the quarter compared to earnings of more than $400 million in Q2 of 2023, which officials blamed on product cracks that broke from “typical seasonal patterns”. During the earnings call, PBF executives seemed to dodge an analyst question about ENT’s report that its Paulsboro NJ refinery would once again be shuttering a crude unit due to weak economics, as it did in 2020, by saying the facility is running today. Note the news report suggested the shutdown would happen later in August. PBF noted that its St. Bernard (parish, not the dog) renewables group would be reducing runs from 16.5mb/d to 12.5mb/d in Q3 as their facility goes through a catalyst change.

Valero started its planned turnaround at the McKee, TX refinery today according to a TCEQ filing. That downtime is expected to take 6-7 weeks, but may not be noticed much in local markets that have been swimming in supply due to the aforementioned increase in refinery runs, and new pipeline capacity feeding the region.