Production Cuts From Saudi Arabia And Russia Are Getting Much Of The Credit For The Continued Rally In Oil Prices

Market TalkFriday, Sep 15 2023
Pivotal Week For Price Action

Refined product prices are sliding to start Friday’s session after reaching new multi-month highs Thursday, while oil prices are clinging to modest gains near their highest prices of the year.      

Self-fulfilling prophecy: Production cuts from Saudi Arabia and Russia are getting much of the credit for the continued rally in oil prices, even though increased exports from Iran and other OPEC members are reducing the impact of those reductions. Perhaps more importantly, the announced production cuts seem to be encouraging money managers that had sat on the sidelines of the energy market for most of last year to jump back in, which seems to be a major contributor in the recent run-up in prices. We’ll get another look at the weekly CFTC commitments of traders report later this afternoon to confirm (or dispel) that theory.

Basis values are becoming noteworthy again with California gasoline values going through another September surge following 2 more reported refinery hiccups Thursday, which makes supplies of the dwindling 6lb RVP gasoline become even more scarce. LA spot values jumped to a $1.20/gallon premium to futures yesterday, which is both impressive and still half of the premium we saw this time last year. 

On the diesel side, there’s a huge difference for ULSD on the west coast vs the Chicago market this morning, with values in California going for 55-65 cents over futures, while Chicago-land ULSD is trading near a 50 cent/gallon discount.

RIN prices continue to come under pressure, with D4 (Bio/RD) values reaching an 18-month low in the mid $1.20s Thursday, while D6 (ethanol) values are following along, essentially pegged to the D4s given that the D4s can be used in place of D6 RINs for compliance purposes. 

Hurricane Lee made another favorable small shift to the east in its forecast path, moving the center of the storm further away from the coast of New England, and Irving’s refinery in St. John NB. It’s worth noting that the European models still have this storm hitting very close to the refinery, while the GFS (US) model hits Nova Scotia, and the difference between the two is likely to be meaningful in terms of the potential disruption to that facility. The storm also seems to be moving ahead faster than previous estimates, which should help vessel traffic resume operations almost 12 hours faster than it appeared just a day ago. That’s the good news. The bad news is that Nigel is about to be named and is on a very similar path to Lee, meaning suppliers along the east coast will still have to contend with shipping delays and the terminal allocations or runouts that come with them for at least another week.

Can’t catch a break: The beleaguered refinery in Texas City, which is the 4th largest in the US, and was renamed “Galveston Bay” several years ago in an effort to rebrand the plants image after numerous deadly fires, reported yet another upset yesterday, this time in a hydro treating unit that was caused by a loss of power. The facility is still trying to recover from another fire that hit an FCC unit a week ago, and to finish repairs from a deadly fire in May.  

Meanwhile, China’s refinery output reached a record high in August as the new capacity that’s been built in recent years comes online just in time to take advantage of the robust diesel market. 

Mexico’s energy minister told local media that the new Dos Bocas refinery that’s been years late and several billion dollars short will be producing at full capacity (around 340mb/day) by the end of the year. IF that facility comes online fully, it will displace a large amount of imports from the US, which is the stated goal of Mexico’s President. Place your bets.  

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Market Talk Update 09.15.2023

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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