Refinery Runs Ticked Up For A 4th Straight Week, Reaching A Fresh 4.5 Year High Last Week

Energy futures continue to try and find a floor, trading slightly higher for a 2nd day, with refined products holding about 6 cents above the multi-month lows they hit Tuesday, despite signs that US refiners continue to crank out more fuel than the market currently needs.

Refinery runs ticked up for a 4th straight week, reaching a fresh 4.5 year high last week. The increase was led by midwestern facilities that apparently haven’t received the memo that their markets are over supplied already as they cranked up production to the 2nd highest weekly total on record. The push higher from facilities that surely can’t forget the 50 cent negative basis values this winter that forced several plants to cut runs is a bit of a head scratcher. One possible reason is that the discount for Canadian crudes has not yet shrunk as much as many believed it would following the opening of Canada’s Trans Mountain pipeline system, and these facilities are racing to take advantage while those spreads last.

Diesel inventories continue to increase, reaching their highest level for May since 2021, even without the 4-5 million barrels of RD inventory we know is in the US but not showing up in the weekly figures. A combination of high refinery runs, weak demand, and a contango that’s paying shippers to sit on diesel for a few months all seem to be contributing to the steady increases in inventory.

Gasoline inventories are also building despite a big drop in imports last week and a healthy export market. The DOE estimated that US gasoline consumption declined for the 2nd week in a row, which essentially erased the typical pattern of a pre-holiday demand spike followed by a post-holiday hangover. Essentially all of the build in both gasoline and diesel stocks came in PADD 1, which seemed to temporarily temper the recovery bounce in futures, but wasn’t enough to keep them in the red for the day.

The DOE is still struggling with its accounting methods on crude oil, with the adjustment factor ticking back up above 1.3 million barrels/day last week. What that means is the DOE “found” roughly 9 million barrels of oil inventory for the week that it’s unsure of an origin for, despite those high refinery runs and a robust export market. Most likely this means that the agencies estimate for oil production just north of 13 million barrels/day continues to be understated due to the widely varying mixture of that oil.

The latest signal of the return to “normal”: Trafigura reported a 73% drop in earnings in the first half of the year, its lowest since the COVID lockdowns, as the world has recovered to a healthy supply of energy commodities, and market volatility has been dramatically reduced. It’s worth noting that the company’s earnings are still strong compared to longer term history, they’re just nothing close to the extreme levels much of the industry has experienced the past 3 years. The report also highlighted the company’s argument that global oil demand remains strong, and inventories relatively low globally which they believe could lead to a tighter market ahead.

Marathon reported more flaring at its Galveston Bay (FKA Texas City) refinery that’s now competing with P66 Borger for the most TCEQ filings in 2024. Not to be outdone, the Borger facility reported its 2nd multi-unit upset in as many days, as the restart of its units appears to not be going too well.

Today’s interesting read: Reuters’ analysis on the “final” round of bidding for Citgo that ends next week, and the boom town of Corpus Christi.

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