Recovery Rally Continues as Refinery Runs Remain Below Par

Market TalkWednesday, Feb 8 2023
Pivotal Week For Price Action

The recovery rally continues for energy prices this morning. ULSD futures have rallied 31 cents off of Monday’s low trade, cutting their losses of the prior two weeks by a third, while basis values across much of the country continue to strengthen as well pushing cash prices sharply higher. Gasoline prices are up 21 cents from their Monday lows and look poised to continue to push higher. 

The EIA’s short term energy outlook forecast that US refinery runs will remain below normal levels through April as lingering issues from the Christmas blizzard, and heavier than normal spring maintenance after numerous plants deferred work in 2022 will both limit production. 

The biggest change in the report was a 30% drop in just 1 month for the US natural gas price forecast as the much warmer than expected winter weather has hampered demand. That phenomenon has no doubt played a role in the huge drop in diesel prices over the past couple of weeks as well as heating oil suppliers along the east coast went from very short on supplies in November to having a glut in February.

The EU Ban on waterborne petroleum products may end up being more disruptive to markets than the crude oil import ban that started in December, and actually forecast a higher number for Russian oil production this year than previously expected. Limited clean tanker availability is expected to be the bottleneck for products whereas so far there have been enough dirty ships to keep most Russian oil moving to alternate markets. Read this Reuters note on how these changes are creating windfalls for shippers and some Asian refiners. 

An FT article following the STEO highlighted that the EIA is subtly forecasting that US Gasoline demand will continue to decline over the next two years, which is taken as a signal that it will never again reach the levels we saw before the pandemic. One analyst was quoted in the article as saying that the “heyday of gasoline is over”. Keep in mind that analyst comes from the same parent company that rated credit default swaps as AAA grade investments back in 2008. 

The API reported builds in refined product inventories of 5.2 million barrels for gasoline and 2.7 million barrels for diesel, while crude stocks declined by 2.2 million barrels on the week.  Those numbers seem to have had minimal impact on outright prices so far but may help explain why the gains in RBOB so far are less than half of those for ULSD in the early going.  Considering we managed to go an entire week without a major refinery upset, and many drivers across the south were forced to stay off the roads for 2-3 days, the build in gasoline inventories is really not surprising at all. We’ll get the EIA’s version of the weekly stocks at the regular time today.

LA CARB Diesel basis differentials jumped by 12 cents/gallon Tuesday, after going almost a week without a price change. That basis rally combined with the strong move in futures to push cash prices up more than 25 cents on the day. Reports of a fire at an LA fire could be to blame for the jump, although the lack of trading for several days, and a return to more normal demand patterns after a terribly wet January could also be at play.

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Market Talk 02.08.2023

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Market TalkFriday, Jun 2 2023

Energy 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

Pivotal Week For Price Action
Market TalkThursday, Jun 1 2023

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.

Pivotal Week For Price Action
Market TalkThursday, Jun 1 2023

Week 22 - US DOE Inventory Recap