Refined Products Are Trading Higher For A 2nd Day, And Have Now Wiped Out The Heavy Losses We Saw Earlier In The Week

Market TalkThursday, Jun 9 2022
Pivotal Week For Price Action

Refined products are trading higher for a 2nd day, and have now wiped out the heavy losses we saw earlier in the week, putting the bulls back in control after a short break. Yesterday’s DOE report was a good reminder that despite most US refineries running all out, inventories remain very tight in most markets and demand is still holding relatively steady despite record high prices. 

Adding to the bullish tone for refined products over the past 24 hours, reports that a Gulf Coast refinery heading for the scrap heap next year could close early if there are disruptions (like from the busy hurricane season that’s forecast) while a major East Coast supplier is apparently experiencing complications with its turnaround that started last month.

One bright spot for those looking for some easing of the supply problems: PADD 1 diesel supplies rose 20% off of record low levels in 1 week, helping to alleviate the extreme tightness we’ve seen across the East Coast.  Still, regional stocks are some 20 million barrels (roughly 40%) below average levels for this time of year. Then again, a fresh natural gas supply squeeze my interfere with the resupply of the East Coast just as it looked like we may get to catch our breath.

Some European natural gas prices are trading up by 30% or more this week after an explosion and fire at a major US LNG export facility. US prices are actually trading lower following that news, and may see more selling near term as barrels that would have otherwise gone overseas will now have to find a domestic home, while European markets simply won’t have a replacement for those barrels any time soon. The plant is expected to be closed for 3 weeks, which certainly won’t help ease the global shortage near term, but is not nearly as bad as it could be and the plant should be back online well before the European winter where the shortages will really become a challenge. As we’ve seen over the past year, the shortage of natural gas in Europe can create more diesel demand as a replacement option, which will mean more competition for cargoes heading to the East Coast of the US.

Today’s interesting read from Bloomberg: Why algorithms used by schools, police and HR departments need a babysitter. Something fuel traders that have watched the rise of algorithms trading in futures markets know all too well.

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

Market Talk Update 6.9.22

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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.

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

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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.

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

Pivotal Week For Price Action
Market TalkWednesday, Jul 17 2024

Week 28 - US DOE Inventory Recap