October ULSD Prices Are Trading Within A Few Points Of A Fresh 8-Month High North Of $3.40/Gallon This Morning

Market TalkWednesday, Sep 13 2023
Pivotal Week For Price Action

After a one-day break, ULSD futures have resumed their march higher and taken back the role as the leader of the energy market with multiple serious weather events contributing to the rally. October ULSD prices are trading within a few points of a fresh 8-month high north of $3.40/gallon this morning, while WTI reached a new high for the year just shy of the $90 mark overnight. 

The disastrous flooding in Libya that has killed more than 6,000 people is being blamed for some of the rally in oil prices as more than 1 million barrels/day of exports are currently shut in. 

The API reported inventory builds across the board last week with gasoline stocks up 4.2 million barrels, diesel up 2.6 million and crude oil stocks up 1.2 million. The DOE/EIA’s weekly report is due out at its normal 9:30 central release time this morning. 

The EIA’s monthly short term energy outlook (STEO) reduced gasoline demand estimates 2% for next year despite an increase in GDP projections from previous reports due to changes in the US census that show more retired-age people who tend to drive less. The report also reduced total liquid fuels consumption in the country as the agency reclassified natural gasoline and unfinished oils as crude oil supply, since those are growing byproducts of oil production that had been artificially inflating the demand estimates for several years.

The report also highlighted the tight diesel supplies along the East Coast as we head into fall and projects a larger than normal decline in inventories next month due to the scheduled refinery turnarounds starting at the Irving and Monroe facilities.

Speaking of Irving, an Energy News Today report Tuesday suggested that the facility was preparing to delay the start of its major maintenance work due to hurricane Lee, which looks like it could make a direct hit on the facility Sunday as a tropical storm. Roughly half of that 320mb/day facility was scheduled to be taken offline for around 6-7 weeks of work starting Sunday, but will now wait until the storm passes to try and avoid having to go through multiple shutdown/restart cycles and to keep vulnerable equipment out of harm’s way. The good news is that the storm that was pushing 165mph sustained winds late last week is only forecast to have winds in the 60-70mph range when it makes landfall, which some New Englanders will classify as just a nice breeze. The bad news is the storm is pushing a huge amount of water into areas vulnerable to storm surge that are already being inundated with regular thunderstorms, so there is still plenty of risk of flooding for communities in its path.   

The family-owned Irving oil company was recently reported to be put up for sale, coinciding with the company losing a 40-year old property tax exemption from the Canadian government, so any impacts from this storm could also influence the decision on what to do with the facility long term. Given the strong years refiners have enjoyed, and the important role this facility plays in supplying the East Coast, it seems hard to imagine this storm could shut down the plant permanently, but then again that’s exactly what Hurricane Ida did to the P66 Alliance facility less than 2 years ago.  

The August CPI report came in +.6% near forecasted levels with headline inflation up 3.7% on the year, while ex Food and Energy prices were up 4.3%. Stocks and energy futures changed little after the report was released, suggesting these figures weren’t surprising anyone. Most notable (if you’re reading this note anyway) are that gasoline and fuel oil prices were up more than 10% in August, meaning that fuel prices are once again the biggest factor in pushing inflation higher after being the largest deflationary data point for most of the past year.

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Market Talk Update 09.13.2023

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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Pivotal Week For Price Action
Market TalkWednesday, Jul 17 2024

Week 28 - US DOE Inventory Recap