Refinery Plant Announces Plan For Shut Down

Market TalkFriday, Nov 6 2020
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Energy and equity markets are slipping modestly lower to start Friday’s session, moving back into a holding pattern after a strong rally as the world continues to wait and see how the U.S. elections will play out.

While it’s been a strong showing this week for petroleum contracts, especially after they were on the edge of a major collapse Sunday night, WTI and RBOB contracts still have lower lows and lower highs on their weekly charts, meaning the downward sloping trends are still in place, and that there’s a good chance we are due for more technical selling pressure.  Fundamentally, it seems like we’re due to see more selling as long as rising COVID cases keep fuel demand in check.

Yesterday in this update we said…we’re just waiting to see which [refinery] plant will be next to announce it plans on shutting down for good. We didn’t have to wait long as a few hours later Shell announced it would be shutting down the 260mb/day refinery in Convent, LA after efforts to sell that facility were unsuccessful. The table below shows that roughly 7% of the country’s refining capacity is now either shuttered indefinitely or planning to shut down/convert to renewable production. That’s more capacity coming offline in the past five months than we’ve seen in the past 30 years. 

After dumping two feet of rain on parts of central America, Eta has moved back over water and could regain hurricane strength over the weekend. The current path has the storm hitting the Florida keys Sunday and Monday, and then most models have it ending up in the Gulf of Mexico next week. Since the market has been able to largely shrug off the half dozen storms that have already hit the heart of Hurricane country so far this year, it seems unlikely this will be a major disrupter unless it strengthens back into a major hurricane and heads towards Houston.

RIN prices rallied to fresh 2.5 year highs Thursday as prospects for a new U.S. President improved. While a divided congress would limit the ability to make legislative changes, the new President would be likely to come with a changing of the guard at the EPA, which would surely be less likely to approve small refinery waivers to the RFS, and thereby force more demand for RINs. This Bloomberg note highlights thoughts from energy CEO’s on other areas where the industry could see changes in the next year as a result of the election.

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Energy Markets Are Ticking Modestly Higher Heading Into The Easter Weekend With Crude Oil Prices Leading The Way Up About $1.25/Barrel Early Thursday Morning

Energy markets are ticking modestly higher heading into the Easter Weekend with crude oil prices leading the way up about $1.25/barrel early Thursday morning, while gasoline prices are up around 2.5 cents and ULSD futures are about a penny.

Today is the last trading day for April HO and RBOB futures, an unusually early expiration due to the month ending on a holiday weekend. None of the pricing agencies will be active tomorrow since the NYMEX and ICE contracts are completely shut, so most rack prices published tonight will carry through Monday.

Gasoline inventories broke from tradition and snapped a 7 week decline as Gulf Coast supplies increased, more than offsetting the declines in PADDs 1, 2 and 5. With gulf coast refiners returning from maintenance and cranking out summer grade gasoline, the race is now officially on to move their excess through the rest of the country before the terminal and retail deadlines in the next two months. While PADD 3 run rates recover, PADD 2 is expected to see rates decline in the coming weeks with 2 Chicago-area refineries scheduled for planned maintenance, just a couple of weeks after BP returned from 7 weeks of unplanned repairs.

Although terminal supplies appear to be ample around the Baltimore area, we have seen linespace values for shipping gasoline on Colonial tick higher in the wake of the tragic bridge collapse as some traders seem to be making a small bet that the lack of supplemental barge resupply may keep inventories tight until the barge traffic can move once again. The only notable threat to refined product supplies is from ethanol barge traffic which will need to be replaced by truck and rail options, but so far that doesn’t seem to be impacting availability at the rack. Colonial did announce that they would delay the closure of its underutilized Baltimore north line segment that was scheduled for April 1 to May 1 out of an “abundance of caution”.

Ethanol inventories reached a 1-year high last week as output continues to hold above the seasonal range as ethanol distillers seem to be betting that expanded use of E15 blends will be enough to offset sluggish gasoline demand. A Bloomberg article this morning also highlights why soybeans are beginning to displace corn in the subsidized food to fuel race.

Flint Hills reported a Tuesday fire at its Corpus Christi West facility Wednesday, although it’s unclear if that event will have a material impact on output after an FCC unit was “stabilized” during the fire. While that facility isn’t connected to Colonial, and thus doesn’t tend to have an impact on USGC spot pricing, it is a key supplier to the San Antonio, Austin and DFW markets, so any downtime may be felt at those racks.

Meanwhile, P66 reported ongoing flaring at its Borger TX refinery due to an unknown cause. That facility narrowly avoided the worst wildfires in state history a few weeks ago but is one of the frequent fliers on the TCEQ program with upsets fairly common in recent years.

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

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Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

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