Glimmers Of Optimism Creep Through

Market TalkTuesday, Mar 24 2020
Energy Prices Set All Sorts Of Records

It’s a rare risk-on day for global markets as small glimmers of optimism are creeping through the coronavirus panic pandemic. It appears that congress is close to an agreement on a huge stimulus package, and China is starting to ease travel restrictions, giving a light at the end of the tunnel for the U.S. and other countries at the early stages of their lock-downs.

Don’t jump at the head-fake: We’ve seen this pattern a few times during the March meltdown where an overnight bounce is unable to sustain itself. This time we saw gasoline prices up nearly nine cents overnight, while WTI was up nearly two dollars, before most of those gains were erased in early morning trade, so it’s still way too early to say that the worst is behind us.

On the other hand, RBOB futures have dropped $1.15/gallon in the past 18 days, leaving only 40 some cents to get to zero, so you could say with confidence that the majority of the losses have already been seen.

The bizarre world of gasoline prices: Many regional spot markets were going for 30 cents or less a gallon following our third consecutive Monday meltdown, and prompt barrels on Wolverine pipeline were going for 17 cents. Given the rapid drop in demand, and tanks reaching capacity, it is not hard to imagine a scenario where a shipper is forced to sell gasoline at a negative number temporarily to clear their inventory. Don’t think that’s possible? Read how it happened with natural gas prices last year.

Ethanol prices are trading at all-time lows, and yet they’re still some 60-80 cents more expensive than the gasoline grades they’re being blended into.

Numerous refinery changes have been announced this week, as plants coast to coast are forced to curb runs. Yesterday alone we saw announcements from Delta/Monroe and P66 on the East Coast, and two Exxon plants in LA and TX, while Husky, BP, Citgo, Marathon have all also announced cut backs and/or changes in maintenance schedules. Even those plants that haven’t announced changes seem likely to be making adjustments to deal with the rapidly dropping demand, and negative margins.

In addition to the U.S. plants, the Caribbean refinery formerly known as Hovensa has been working on restarting for several years, but those efforts look like they could be delayed after a worker tested positive for the coronavirus.

For now it seems like the run cuts are hovering around the 20 percent range, consistent with last week’s announcement from Colonial pipeline that it would reduce flow rates by the same amount. Depending on how long this shelter-in-place lasts, those cut backs could easily change to 50 percent or more in the next few weeks as the demand slowdown appears to be getting worse by the day.

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Market TalkThursday, Feb 22 2024

Week 7 - US DOE Inventory Recap

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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.

Pivotal Week For Price Action
Market TalkWednesday, Feb 21 2024

It’s A Mixed Start For Energy Markets To Start Wednesday’s Session After A Heavy Round Of Selling Tuesday

It’s a mixed start for energy markets to start Wednesday’s session after a heavy round of selling Tuesday. RBOB gasoline futures are clinging to modest gains in the early going while the rest of the complex is moving lower.  

WTI is pulling back for a 2nd day after reaching a 3.5 month high just shy of $80. The pullback pushes prompt values back below the 200-day moving average, reducing the likelihood of a breakout to the upside near term.

ULSD values are down nearly 10 cents for the week and are down more than 26 cents from the high trade set February 9th. That pullback leaves ULSD in neutral territory and could act as a headwind for gasoline prices that still seem poised to at least attempt a typical spring rally that adds roughly 20-30% from winter values.

RIN prices continue their slide this week, with D6 and D4 values reaching new 4-year lows around $.41/RIN Tuesday, which is down just slightly from the $1.62/RIN they were going for a year ago.

HF Sinclair reported a loss for Q4 this morning, with its refining and renewables segments each losing roughly $75 million for the quarter. The change from a year ago in the refining segment is a harsh reminder of the cyclical nature of the business as earnings dropped more than $800 million year on year, with inventory cost adjustments accounting for roughly ¼ of that decline.   

While it wasn’t mentioned in the press release, HFS has the most direct exposure to New Mexico’s recent approval of a clean fuel standard that will start in 2026. That law will no doubt help the company’s struggling Renewables assets in the state but will also create extra costs for their traditional refining operations.

The EIA this morning noted that conditions in the Panama Canal improved slightly in January, allowing Gulf Coast exports to Asia, primarily of Propane and ethane, to increase. While transit capacity is still far below levels we saw before the drought reduced operations in the canal, any improvement offers welcome relief to shippers as they can avoid going the long-way around to avoid the violence in the Red Sea.

France’s navy didn’t waste any time getting into the Red Sea action, shooting down a pair of Houthi Drones less than a day after joining the EU’s official mission to assist in clearing the shipping lanes. It’s not yet clear whether this marks the first official military victory by the French since Napoleon. 

Reminder that the weekly inventory reports are delayed a day due to the holiday Monday.

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