Refined Products Are Treading Water This Morning As The Market Continues To Cool Its Heels After Last Week’s Big Rally

Market TalkWednesday, Feb 14 2024
Pivotal Week For Price Action

Refined products are treading water this morning as the market continues to cool its heels after last week’s big rally. Gasoline prices are hovering near breakeven after 2 straight up days, while ULSD futures are seeing modest declines in what would be a 3rd straight day of losses to follow 5 straight days of increases.

It’s not just refined products that are seeing a diverging path this week: WTI is trading higher for an 8th consecutive session, while natural gas is trading lower for an 8th day, reaching a 3.5 year low in the process. In some ways, natural gas prices are being pushed lower by crude, since the record high production of oil in the US is also coming with an excess production of gas, while record warm temperatures this winter put a big damper on demand. 

The weakness in natural gas markets also seems to be spilling into ULSD prices, particularly after the Nor’easter that slammed the East Coast yesterday moved through the area quickly and didn’t lead to any gas curtailments that would cause diesel demand to spike near term.  That lack of heating demand also helps explain the sharp pullback in diesel spreads this week after a sharp rally when the first forecasts for that storm came out last week.

Natural gas is also featuring in the latest Middle Eastern violence after one of Iran’s major gas pipeline systems was targeted in a series of “terrorist” attacks.

OPEC continues to sound bullish in its latest monthly oil market report, noting that while global growth remains below pre-pandemic levels, economic activity surpassed expectations last year and they predict that trend to continue as inflation eases in the world’s major economies. 

The report also noted a huge divergence in clean product tanker rates depending on which side of the Red Sea you’re on, with East of Suez rates surging 45%, while West of Suez dropped by 10%. Sour crude grades were also increasing due to the Red Sea shipping disruptions reducing the options for Asian Pacific buyers.

OPEC’s oil output dropped by 350mb/day during January with large decreases from Libya, Kuwait and Iraq offsetting small increases from Saudi Arabia and the UAE.

The API reported healthy draws in refined product inventories last week with gasoline stocks down 7 million barrels and diesel down 4 million barrels. Crude oil stocks rose by more than 8 million barrels on the week, with roughly half of that gain accounted for by the shutdown of BP’s Whiting refinery that’s reached almost 2 weeks. The EIA’s weekly status report is due out at its normal time this morning and will be delayed by President’s day next week. 

Chevron and PBF dropped lawsuits and agreed to comply with San Francisco Bay-Area regulators on a plan to reduce particulate pollution starting in July 2026. Expectations are that both facilities will install wet gas scrubbers to comply with the ruling, rather than convert their operations as 2 other Bay-Area refineries have done recently.

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Market Talk Update 02.14.2024

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Market TalkFriday, May 24 2024

Selling Continues In Energy Markets After Thursday's Reversal Rally Ran Out Of Steam In The Afternoon

The selling continues in energy markets after Thursday’s reversal rally ran out of steam in the afternoon, following the lead of U.S. equity markets which had a big sell-off on the day. Prices haven’t yet fallen below the multi-month lows we saw early last week, but we’re just a couple of cents away from those levels, and the potential technical trapdoor that could lead to sharply lower values over the next couple of weeks.

We did see a brief spike in gasoline futures after the settlement Thursday following reports that Colonial had shut down Line 4 due to an IT issue, but those gains were short-lived as the pipeline was restarted without issue a few hours later. Those who remember the chaos of May 2021 after Colonial was hacked are breathing a sigh of relief, particularly on one of the busiest demand days of the year, while others are no doubt disappointed we won’t get to see the rash of fake photos of people filling up plastic bags with gasoline.

OPEC & Friends (AKA the DoC) announced they’re moving June’s policy meeting to a virtual-only affair, which the market is taking as a signal of the status quo being held on output cuts.

Chicago being Chicago: Tuesday’s 60-cent basis spike was officially wiped out by Thursday afternoon, suggesting the short-lived rally was just short covering in an illiquid market rather than a meaningful supply disruption.

RIN values continued their rally this week, touching a 4-month high at 59 cents/RIN for both D4 and D6 values Thursday. If you believe in technical analysis on something like RINs, you can see a “W” pattern formed on the charts, suggesting a run to the 80-cent range is coming if prices can get above 60. If you are more of a fundamentalist, then you’ll probably think this rally is probably more short-term short-covering by producers of RD who have changed their schedule buying back their RIN hedges for volume they’re no longer planning to produce.

NOAA issued its most aggressive Hurricane forecast ever Thursday, joining numerous other groups that think a La Nina pattern and record warm waters will create more and bigger storms this year. With the activity level seeming to be a foregone conclusion at this point, now it’s all about where those storms hit to know if this busy season will be a huge factor in energy supplies like we saw in 2005, 2008, 2012 and 2017. With the Houston area already being bombarded by floods and deadly wind this year, the refinery row across the U.S. Gulf Coast seems even more vulnerable than normal to the effects of a storm.

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Pivotal Week For Price Action
Market TalkThursday, May 23 2024

Gasoline Prices Have Finally Found A Bid, Trading Up 3 Cents On The Day

Gasoline prices have finally found a bid, trading up 3 cents on the day after coming within a penny and a quarter of the multi-month lows set last week overnight. ULSD prices are also up a couple of cents in the early going after wiping out the gains they made last week. Both contracts are once again threatening a technical breakdown that could push prices another 20-30 cents lower if the current bounce isn’t sustained.

The EIA’s estimate for gasoline demand surged to a 7-month high last week, capping off a 4th straight week of gains that puts total consumption near the top end of the seasonal range after a very sluggish start to the year. AAA estimates that travel this Memorial Day weekend will approach a 20 year high with nearly 44 million people hitting the roads.

The EIA also published a note this morning showing average US gasoline prices are up 1% from last year, accompanied by a chart showing that average prices are down 7 cents/gallon from this time last year. The spread between retail gasoline prices on the West Coast vs the rest of the country continues to grow and is shown to be over $1.20/gallon thanks to Oregon and Washington’s Californication of their energy policies in recent years.

The EIA still seems to be struggling to figure out its accounting methods for crude oil inventories, with the adjustment factor that’s been creating all sorts of confusion the past couple of years flipping from a negative 200,000 barrels/day last week, to a positive 1.4 million barrels/day this week. You could give the EIA compilation crew a break and say that this reflects just how large and complex the US crude oil supply network is, or you could ask how did they suddenly “find” 10-million barrels of oil that they didn’t see last week.

Refiners are cranking up run rates, exceeding the levels we’ve seen this time of year in either of the past 2 years. Those higher run rates are added to the glut of diesel products that’s hanging over the majority of the country, and pushing rack spreads to levels we haven’t seen since the COVID lockdown in several markets.

The export market for US crude and refined products remains very busy with nearly 10 million barrels shipped out of the country every day. Refinery throughput was 16.2 million barrels/day last week, and more than 6 million barrels/day was exported even though gasoline and diesel exports have stagnated this year. The anticipated tick higher in US diesel exports following the rash of Russian refinery attacks has not materialized, which is no doubt contributing to the negative sentiment for diesel prices over the past month. The busy and growing export market for crude and other products also creates an interesting dynamic as we prepare for a busy hurricane season to kick off in a week as any disruption to infrastructure along the Gulf Coast could limit product going out of the country almost as much as it disrupts products flowing inland.

Basis values for RBOB in Chicago dropped 30 cents Wednesday after Tuesday’s 60 cent spike. It’s still unclear what if any impacts the confirmed fire at Exxon’s Joliet refinery, or the rumored upsets at BP’s Whiting facility have had on actual supply in the region, but the quick pullback suggests this is a flash in the pan rather than the start of a prolonged supply shortage.

Exxon reported a leak at its Beaumont TX Chemical plant, but it appears that upset isn’t impacting the operations at its adjacent refinery.

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Pivotal Week For Price Action
Market TalkWednesday, May 22 2024

Week 20 - US DOE Inventory Recap