Refinery Restarts Underway
The snow is gone and the power is on, after a 70 degree warm up in five days and the refinery restarts are underway. How long those restarts take, and which plants may choose to move up spring maintenance as long as they are doing repairs anyway will be the two main factors determining if tight supplies last a few days or a few weeks. Oil prices are ticking up and products are seeing small losses as the traders seem to be cautious about the return to relative normalcy this week.
While some news outlets are suggesting that the damage done last week may mean a spike in retail gas prices north of $3/gallon, it appears wholesale price gains may be limited to the 10-20 cents for diesel and 20-30 cents for gasoline thanks in large part to excess capacity before the storm and soft demand.
Notices filed to the Texas Commission on Environmental Quality (TCEQ) throughout the week detail the hundreds of facilities from production, transportation and refining of oil and natural gas products that were knocked offline due to the cold or lack of power. A Reuters article highlighted that the subsequent emissions events over the past week surpassed those reported for an entire year at several facilities.
The EPA issued a temporary emergency waiver on TXLED diesel additive and El Paso oxygenate requirements to try and help expedite resupply through March 5. The relatively limited scope of those waivers probably won’t have much impact since the TXLED additives are often blended at the terminals anyway, and neither of the largest RBOB markets of Houston or DFW appear to be getting a break. We are still in the early days of the spring RVP transition however, so producing on-spec gasoline is still relatively easy compared to summer-time blends, which will help output crank up quickly.
Baker Hughes reported a decline of one active oil rig in the U.S. last week, snapping a streak of gains that stretched for 12 straight weeks. With the chaos in Texas last week, it’s hard to say how accurate the count may have been, with estimates suggesting nearly half of the Permian Basin’s output was forced to temporarily shut in, and the “active” drilling rigs were likely anything but.
Money managers look like they froze along with much of the energy industry last week, making only minimal changes to their holdings in the petroleum-based energy contracts. Most notable in the CFTC weekly report is that WTI net length held by large speculators ticked to a new 18 month high, and open interest in WTI & Brent contracts surged to its highest in almost a year. That renewed interest from the big money speculators could mean we’ll see more volatility in the weeks ahead as the influx or exit of their dollars can create large price swings.
Today’s interesting read: How margin requirements spiked along with natural gas prices last week.
Click here to download a PDF of today's TACenergy Market Talk.
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Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
Click here to download a PDF of today's TACenergy Market Talk.
After Another Black Friday Selloff Pushed Energy Futures Sharply Lower In Last Week’s Holiday-Shortened Trading
After another Black Friday selloff pushed energy futures sharply lower in last week’s Holiday-shortened trading, we’re seeing a modest bounce this morning. Since spot markets weren’t assessed Thursday or Friday, the net change for prices since Wednesday’s settlement is still down more than 6-cents for gasoline and almost 5-cents for diesel at the moment.
OPEC members are rumored to be nearing a compromise agreement that would allow African producers a higher output quota. Disagreement over that plan was blamed on the cartel delaying its meeting by 4-days last week which contributed to the heavy selling. The bigger problem may come from Russia, who announced plans last week to increase its oil output once its voluntary cut agreement ends now that price cap mechanisms are proving to be ineffective.
While an uneasy truce in Gaza held over the weekend, tensions on the Red Sea continued to escalate with the US Navy intervening to stop another hijacking and being rewarded for its efforts by having missiles fired at one of its ships.
RIN values came under heavy selling pressure Wednesday afternoon following a court overturning the EPA’s ruling to deny small refinery hardship waivers to the RFS. Those exemptions were a big reason we saw RINs drop sharply under the previous administration, and RINs were already on due to the rapid influx of RD supply this year.
More bad news for the food to fuel lobby: the White House is reportedly stalling plans to allow E15 blending year-round after conflicting studies about ethanol’s ability to actually lower carbon emissions, and fuel prices. Spot prices for ethanol in Chicago reached a 2.5 year low just ahead of the holiday.
Baker Hughes reported the US oil rig count held steady at 500 active rigs last week, while natural gas rigs increased by 3.
The first of perhaps several refining casualties caused by the rapid increase in new capacity over the past two years was reported last week. Scotland’s only refinery, which has a capacity of 150mb/day is preparing to shutter in 2025.
The CFTC’s commitment of traders report was delayed due to the holiday and will be released this afternoon.
Click here to download a PDF of today's TACenergy Market Talk.