The Group 3 Diesel Market Set A Record Last Week With Prompt Barrels Trading At A $1.15 Per Gallon

Market TalkMonday, Oct 23 2023
Pivotal Week For Price Action

It’s a quiet start for energy futures to begin the week as the world nervously watches events in the Middle East while big news is breaking elsewhere in the world.    

The Group 3 diesel market set a record last week with prompt barrels trading at a $1.15/gallon premium to futures as peak harvest demand coincided with multiple refinery upsets stretching from North Dakota to Oklahoma.  Meanwhile, the neighboring Chicago ULSD market continues to languish in excess supply, trading at a 25 cent discount to November futures as local refiners struggle to find a home for their production even before BP’s pipeline spill in Michigan last week took one pipeline option off the table for the region’s largest refinery.

Money managers showed a mixed reaction in the first full week of position data we’ve seen since the war broke out in Israel and Gaza. The large speculators reversed the liquidation trend in Brent crude and ULSD contracts as you might expect given the fear of supply disruption that’s been so well noted the past couple of weeks, but they also reduced their positions in WTI, RBOB and Gasoil, suggesting the big money bettors aren’t totally convinced of an all-out price rally. 

The net length held by speculators in RBOB reached its lowest level since the COVID lockdowns 3.5 years ago that saw refined products going for less than $1 while WTI traded negative. There’s a trading adage that suggests anytime the big speculators get a large position in either direction the market is about to change, and right on cue, RBOB gasoline futures rallied for 6 consecutive trading sessions following last week’s data compilation.

Contagious mergers? Less than 2 weeks after Exxon announced it was buying Pioneer for around $60 billion, Chevron announced it will buy Hess for $53 billion. Maybe next Exxon and Chevron could merge and call themselves Standard Oil.

Baker Hughes reported a net increase of 1 oil rig and 1 natural gas rig in the US last week, marking the first time we’ve seen 2 straight weeks of increases all year. While the net gain is minimal, this may signal that the rig count may have found its floor thanks to the recovery in prices and recent spending spree by the majors. 

More Gulf Coast refinery hiccups were reported late last week although unlike what we’re seeing in the Midwest, the impacts of these events seem to be minimal. P66 reported an FCC unit tripped offline at its Sweeny Facility Thursday.  Valero reported a coker was temporarily disrupted at its Port Arthur facility and the Alon (Delek) refinery in Big Spring Texas sprung a small leak in an FCC unit Friday.  

Citgo’s auction process will finally start this week after years of delays with a marketing campaign to sell the Venezuelan owned refiner and retail chain in what’s expected to be the largest court auction ever. 

Hurricane Tammy is turning North East away from the US this morning, but the latest models suggest the storm may turn South and West over the weekend and come back towards Florida next week. The good news is that the storm system will be moving north through cooler water this week which will reduce its strength and limit the threat it has to the US coast.

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Market Talk Update 10.23.2023

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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.

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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.

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Pivotal Week For Price Action
Market TalkWednesday, Jul 17 2024

Week 28 - US DOE Inventory Recap