Real-World Impact Of Refinery Shutdowns
The fourth quarter is starting on a soft note for energy markets with the big 4 petroleum contracts all trading modestly lower to start the day, after staging a healthy recovery bounce to finish off September. This time yesterday it was looking like we may be setting the stage for a substantial move lower in product prices, but the selling pressure didn’t last long after 8 a.m., leaving the complex stuck in its sideways pattern.
After a rough September, U.S. equity markets are pointed higher to start October trading, but so far that strength has not carried over to energy prices.
Yesterday’s DOE report did little to sway price action as inventory and demand estimates had relatively minor moves. Total refinery runs in the U.S. remain lower now than they were after Hurricane Harvey knocked nearly 1/4th of the country’s capacity offline three years ago, and yet this time there are no supply shortages to speak of as demand continues to lag.
With the seasonal demand slowdown looming for gasoline, and diesel inventories still near record highs, we may see refinery run rates continue to decline over the next month, with more outright closures still a distinct possibility. This article highlights the real-world impact of the refinery shutdowns that have already happened this year.
The CFTC ordered Sunoco LP to pay a $450,000 fine for spoofing crude oil, gasoline and diesel contracts in 2014. The statement says the trader involved used 50-100 lot increments (50,000-100,000 barrels or roughly 2-4 million gallons of notional volume) to push the market towards smaller positions they actually planned to execute, and once done would cancel the larger orders. This is just a day after JP Morgan agreed to pay $920 million for spoofing metals and treasury markets. Based on the size of the fines, you can get a feel for just how huge the banks’ manipulative trading practices were in comparison.
A Rystad energy report released yesterday suggests that U.S. onshore crude production likely peaked in August and will decline over the next year as prices are unlikely to recover enough to spur more drilling activity.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllEnergy Prices Up Over 2% Across The Board This Morning
Refined product futures traded in an 8-10 cent range yesterday with prompt heating oil settling up ~6 cents and RBOB ending up about flat. Oil prices clawed back some of the losses taken in the first two full trading days of the week, putting the price per barrel for US crude back over the $70 mark. Prices are up just over 2% across the board this morning, signifying confidence after the Senate passed the bipartisan debt ceiling bill last night.
The EIA reported crude oil inventories up 4.5 million barrels last week, aided by above-average imports, weakened demand, and a sizeable increase to their adjustment factor. The Strategic Petroleum Reserve continues to release weekly through June and the 355 million barrels remaining in the SPR is now at a low not seen since September 1983. Exports increased again on the week and continue to run well above last year’s record-setting levels through the front half of the year. Refinery runs and utilization rates have increased to their highest points this year, both sitting just above year-ago rates.
Diesel stocks continue to hover around the low end of the 5-year range set in 2022, reporting a build of about half of what yesterday’s API data showed. Most PADDs saw modest increases last week but all are sitting far below average levels. Distillate imports show 3 weeks of growth trending along the seasonal average line, while 3.7 million barrels leaving the US last week made it the largest increase in exports for the year. Gasoline inventories reported a small decline on the week, also being affected by the largest jump in exports this year, leaving it under the 5-year range for the 11th consecutive week. Demand for both products dwindled last week; however, gas is still comfortably above average despite the drop.
The sentiment surrounding OPEC+’s upcoming meeting is they’re not likely to extend oil supply cuts, despite prices falling early in the week. OPEC+ is responsible for a significant portion of global crude oil production and its policy decisions can have a major impact on prices. Some members of OPEC+ have voluntarily cut production since April due to a waning economic outlook, but the group is not expected to take further action next week.
Click here to download a PDF of today's TACenergy Market Talk
Prices Are Mixed This Morning As The Potential Halt In U.S. Interest Rate Hikes
Bearish headlines pushed refined products and crude futures down again yesterday. Prompt RBOB closed the month at $2.5599 and HO at $2.2596 with WTI dropping another $1.37 to $68.09 and Brent losing 88 cents. Prices are mixed this morning as the potential halt in U.S. interest rate hikes and the House passing of the US debt ceiling bill balanced the impact of rising inventories and mixed demand signals from China.
The American Petroleum Institute reported crude builds of 5.2 million barrels countering expectations of a draw. Likewise, refined product inventories missed expectations and were also reported to be up last week with gasoline adding 1.891 million barrels and diesel stocks rising 1.849 million barrels. The market briefly attempted a push higher but ultimately settled with losses following the reported supply increases implying weaker than anticipated demand. The EIA will publish its report at 10am this morning.
LyondellBasell announced plans yesterday to delay closing of their Houston refinery, originally scheduled to shut operations by the end of this year, through Q1 2025. The company “remains committed to ceasing operation of its oil refining business” but the 289,000 b/d facility remaining online longer than expected will likely have market watchers adjusting this capacity back into their balance estimates.
Side note: there is still an ongoing war between Russia and Ukraine. Two oil refineries located east of Russia's major oil export terminals were targeted by drone attacks. The Afipsky refinery’s 37,000 b/d crude distillation unit was struck yesterday, igniting a massive fire that was later extinguished while the other facility avoided any damage. The attacks are part of a series of intensified drone strikes on Russian oil pipelines. Refineries in Russia have been frequently targeted by drones since the start of the military operation in Ukraine in February 2022.