Surplus Crude, Record Gas Drawdowns, And Refinery Strains Shape A Chaotic Week

It was an eventful night for energy markets, but so far a quiet morning so far as traders anxiously await news from the U.S., Iran negotiations that have helped drive a volatile week. Diesel futures were up more than a nickel then down 2.5 cents overnight and are momentarily showing penny losses for the day heading into the 8 o’clock hour. As has been the case for most of the past 2 weeks, gasoline prices are seeing smaller swings trading between up 2 cents and down a penny overnight and are currently hovering near break-even.

Saudi Arabia has cut its main index differential for Asian buyers for a 5th straight month, in the latest sign that the oil surplus isn’t contained to sanctioned barrels stuck on the water. That news is helping to encourage a modest selloff in oil futures after they too saw a brief overnight rally.

While the DOE’s weekly status report showed relatively minimal impact on oil and product supplies from Winter Storm Fern, the weekly Natural Gas report showed the largest weekly stock drawdown on record as demand spiked and production dipped due to the sub-freezing temps. The EIA further highlighted this drawdown in a Thursday analysis, comparing the drawdown to major winter storms of years past.

Although the impacts to the refined product network and the price action wasn’t nearly as dramatic as natural gas, the ripple effects continue as demand for off-road diesel continues strong in several markets along the East Coast due to power plants refilling their backup tanks, while the north east quarter of the country continues to struggle to find enough cold-weather distillate options with yet another storm approaching.

Chevron reported multiple flaring episodes in the past 2 days at its 240mb/day Richmond CA refinery. That plant is also known as the only remaining fully functioning refinery in the Bay Area as Superbowl crowds descend on the region while PBF continues to struggle to bring its 157mb/day Martinez plant fully online after a fire a year ago, Valero is beginning to permanently shutter the 165mb/day Benecia plant, Marathon converted Martinez from a 160mb/day oil refinery to a 48mb/day renewable refinery and P66 converted Rodeo from a 120mb/day crude oil refinery to a 50mb/day renewable facility.

Ask your branded sales rep if they can turn a wrench. 98% of union workers at the 440mb/day BP Whiting refinery – the largest plant in the Midwest – have apparently voted to authorize a strike after negotiations for a new labor agreement have failed and the United Steelworkers Union announced Thursday that workers should prepare for a strike or lockout.

Meanwhile, the USW continues negotiations with Marathon representing workers in the National Oil Bargaining Program at refineries that make up nearly 2/3s of all domestic capacity. While the BP Whiting negotiations and NOBP talks aren’t directly linked to one another, there’s obviously a close connection with the USW so it’s not a stretch to think that strikes could become more widespread if negotiations break down.