Refined Product Futures Drop Despite Refinery Run Slowdown

Market TalkThursday, Feb 16 2023
Pivotal Week For Price Action

Diesel prices were trying to lead the energy complex lower again to start Thursday’s trading, with gasoline and crude prices somewhat reluctant participants in the modest slide after staging a solid comeback in Wednesday’s session.

The DOE reported a huge build of more than 16 million barrels of crude oil Wednesday, which added to the selling pressure that had started earlier in the morning. Roughly 10 million barrels of the increase can be accounted for by increases in imports and decreases in exports, along with a large drop in refinery runs as plants start a busy spring maintenance schedule. The increase puts total commercial oil inventories above the seasonal 5 year range for this time of year, but factoring in the SPR, those inventories are more than 200 million barrels lower than a year ago.

Diesel was the only category to see an inventory decline on the week, so it was a little surprising to see ULSD leading the move lower in prices again, and ending the day with heavy losses even though gasoline prices staged a strong rally to end the day in positive figures.  The catch is that PADD 1 saw a build of 2.3 million barrels (6.7%) on the week as the ongoing warm weather has crushed demand for heating oil. Then again PADD 1 gasoline stocks saw a 3 million barrel build last week, which certainly doesn’t help explain the rally in RBOB to end the day.

Perhaps the biggest story of the week was that all PADDs 1-4 all saw declines in refinery output, and the net total for the US was a 2.5% drop in refinery runs for the week. It’s been reported for months that the US was scheduled to have much busier than normal refinery maintenance heading into the spring since so many facilities deferred work last year to capture record margins, and now it appears we’re there. While many markets around the country have returned to a state of calm, the rapid drop in output threatens to make things interesting again if demand starts cranking up again as spring approaches. So far this year we’ve seen demand for both gasoline and diesel stay well below both last year’s levels and their 5 year averages, which some see as a sign of the much-feared recession being upon us, while others dismiss as simply a sign of numerous winter storms that disrupted transportation without the cold needed to increase heating demand. 

PBF announced a JV partnership with Italian energy major Eni for its renewable diesel facility (which Europeans refer to as Hydrotreated Vegetable Oil) located at its refinery in Chalmette LA. Eni is putting up more than $880 million in capital to the facility, which is expected to produce 20,000 barrels/day of RD aka HVO later in 2023, along with new feedstock sourcing options outside of the US (Sicilian Olive Oil perhaps?). The facility will now be referred to as Saint Bernard Renewables (SBR)

Last year German utility Uniper had to be bailed out due to the spike in energy prices across Europe, and now has announced it is selling its refinery in the UAE to meet part of the terms of that bailout agreement.  Adding insult to injury, natural gas prices have dropped so much recently due to a warm winter that many suppliers are now facing a glut of supply that may costs billions to liquidate. 

Flint Hills reported a 2nd issue this week at its Corpus Christi refinery to TX regulators. This time a gas oil leak was detected inside the dike area surrounding a tank. No word if this leak could be related to the issue over the weekend that caused fuel to be found in a storm water drain, or if any production units were impacted for the facility that is a key supplier to the San Antonio, Austin and DFW markets.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Market Talk Update 02.16.2023

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Pivotal Week For Price Action
Market TalkFriday, Feb 23 2024

The DOE Report Sparked A Solid Rally In Energy Futures Thursday, But That Upward Momentum Proved Short-Lived

The DOE report sparked a solid rally in energy futures Thursday, but that upward momentum proved short-lived as prices gave back those gains overnight, despite US equity markets surging to all-time highs.

The weekly inventory report showed US refiners are struggling to come back online from a busy maintenance season that was further complicated by January’s cold snap and the unexpected shut down at BP Whiting. Refinery utilization held near 80% on the week, which helped pull gasoline inventories lower despite sluggish demand and a surge in imports along the East Coast. Diesel demand showed a big recovery from last week’s ugly estimate, and when you factor in the missing 4-5% that doesn’t show up due to RD not being included in the reports, actual consumption looks much healthier than the report suggests.

Based on reports of restarts at several major refineries this week, we should see those utilization numbers pick up in next week’s report.

The EPA Thursday approved year-round E15 sales in 8 corn-growing states, despite the fact that the extra ethanol blends have been shown more to pollute more in the warm times of the year. The effective date was pushed back a year however in a show of election-year tight rope walking, which the EPA couched as ensuring that the move wouldn’t lead to a spike in fuel prices this summer.

Of course, the law of unintended consequences may soon be at play in a region that tends to be long gasoline supply for large parts of the year. Removing 5% of the gasoline demand could be another nail in some of the smaller/less complex refineries’ coffins, which would of course make fuel supply less secure, which contradicts one of the main arguments for making more 198 proof grain alcohol and selling it as fuel. Ethanol prices meanwhile continue to slump to multi-year lows this week as low corn prices continue to push unusually high production, and the delayed effective date of this ruling won’t help that.

While Nvidia’s chip mania is getting much of the credit for the surge in equity prices this week, there was also good news for many more companies in reports that the SEC was planning to drop its requirements on Scope 3 emissions reporting which is particularly useful since most people still can’t figure out what exactly scope 3 emissions really are.

In today’s segment of you can’t make this stuff up: The case of chivalry gone wrong with the BP/TA acquisition, and a ketchup caddy company caught spoofing electric capacity.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action
Market TalkThursday, Feb 22 2024

Week 7 - US DOE Inventory Recap

Pivotal Week For Price Action
Market TalkThursday, Feb 22 2024

RBOB And ULSD Futures Down Around 2.5 Cents After A Mixed Performance Wednesday

Refined products are leading the energy complex lower to start Thursday’s trading with both RBOB and ULSD futures down around 2.5 cents after a mixed performance Wednesday.

The API reported another large build in crude oil inventories last week, with inventories up more than 7 million barrels while gasoline inventories increased by 415,000 barrels and diesel stocks dropped by 2.9 million. The crude oil build was no doubt aided once again by the shutdown of BP’s Whiting refinery that takes nearly ½ million barrels/day of oil demand out of the market. That facility is said to be ramping up operations this week, while full run rates aren’t expected again until March. The DOE’s weekly report will be out at 11am eastern this morning.

Too much or not enough? Tuesday there were reports that the KM pipeline system in California was forced to shut down two-line segments and cut batches in a third due to a lack of storage capacity as heavy rains have sapped demand in the region. Wednesday there were new reports that some products ran out of renewable diesel because of those pipeline delays, bringing back memories of the early COVID lockdown days when an excess of gasoline caused numerous outages of diesel.

The Panama Canal Authority has announced $8.5 billion in sustainability investments planned for the next 5 years. Most of those funds are aimed at sustainability efforts like modernizing equipment and installing solar panels, while around $2 billion is intended for a better water management system to combat the challenges they’ve faced with lower water levels restricting transit by 50% or more in the past year. More importantly in the near term, forecasts for the end of the El Nino pattern that contributed to a record drought, and the beginning of a La Nina pattern that tends to bring more rain to the region are expected to help improve water levels starting this summer.

The bad news is that La Nina pattern, coupled with historically warm water temperature has Accuweather forecasters sounding “Alarm Bells” over a “supercharged” hurricane season this year. Other years with a similar La Nina were 2005 which produced Katrina, Rita and Wilma and 2020 when we ran out of names, and the gulf Coast was repeatedly pummeled but markets didn’t react much due to the COVID demand slump. Perhaps most concerning for the refining industry is that unlike the past couple of years when Florida had the bullseye, the Texas coast is forecast to be at higher risk this year.

RIN prices continued their slide Wednesday morning, trading down to 38 cents/RIN before finally finding a bid that pushed values back to the 41-42 cent range by the end of the day.

The huge slide in RIN values showed up as a benefit in Suncor’s Q4 earnings report this morning, as the Renewable Volume Obligation for the company dropped to $4.75/barrel vs $8.55/barrel in Q4 of 2022. Based on the continued drop so far in 2024, expect that obligation to be nearly cut in half again. Suncor continued the trend of pretty much every other refiner this quarter, showing a dramatic drop in margins from the record-setting levels in 2022, but unlike a few of its counterparts over the past week was able to maintain positive earnings. The company noted an increase in refining runs after recovering from the Christmas Eve blizzard in 2022 that took down its Denver facility for months but did not mention any of the environmental challenges that facility is facing.

Valero’s McKee refinery reported a flaring event Wednesday that impacted multiple unites and lasted almost 24 hours. Meanwhile, Total reported more flaring at its Pt Arthur facility as that plant continues to struggle through restart after being knocked offline by the January deep freeze.

Speaking of which, the US Chemical Safety board released an update on its investigation into the fire at Marathon’s Martinez CA renewable diesel plant last November, noting how the complications of start -up leave refineries of all types vulnerable.

Click here to download a PDF of today's TACenergy Market Talk.