The Recovery Rally In Energy Contracts Continues This Morning With Refined Products Now Up 15-20 Cents Since Last Tuesday

Market TalkWednesday, Jun 12 2024
Pivotal Week For Price Action

The recovery rally in energy contracts continues this morning with refined products now up 15-20 cents since last Tuesday, despite some bearish fundamental data from the EIA and IEA monthly reports. It seems clear that some of the big new bets placed on lower energy prices last week are being squeezed out of the market with this week’s rally, and the latest CPI report that showed cooling inflation is adding fuel to the bullish fire.

The BLS reported the Consumer Price Index for all consumers was unchanged in May, with an annual rate of 3.3%, both of which came below most published forecasts. As predicted last month, a big drop in gasoline prices in May was a major contributor to the steady inflation reading, offsetting price increases in shelter, food and services.

The EIA’s monthly energy market report lowered its forecasts for oil and product prices, as global supplies remain ample and non-OPEC production continues to provide plenty of global capacity.

The EIA cited the ongoing weakness in US trucking (quantified in the ATA’s Truck Tonnage Index) for the ongoing slump in diesel demand that’s pushed diesel cracks near 3 year lows. The ATA’s report suggests that “With a rebound in freight remaining elusive, it is likely that additional capacity will leave the industry in the face of continued softness in the market.”

The June outlook also highlighted the big gap between the S&P Global macroeconomic model that the government pays to use in its forecasts, and the actual outcome in terms of US jobs this year. So far in 2024, the S&P Global model has missed the actual job growth by about 90%. Anyone who remembers that S&P is the same group that rated credit default swaps as AAA credit risk in 2008 is probably not surprised by this. S&P also owns Platts.

The IEA continues to use its monthly report to beat a bearish drum, citing a slowing of world oil demand growth that’s roughly half of what it’s rivals at OPEC are projecting for the next 18 months. The agency also notes that refinery margins in Asia are already below “Run Cut” levels [thanks to the influx of new capacity over the past 2 years] and already they’re seeing Chinese refiners cut back rates to “COVID era” levels.

The API reported a draw in both crude and gasoline stocks of around 2.5 million barrels each last week, while diesel stocks increased by just under 1 million barrels. The DOE’s weekly report is due out at its normal time today, and then will be delayed 24.5 hours next week for the Juneteenth holiday on Wednesday.

And you wonder why refiners are leaving the state. In addition to the newly required monthly margin reports recently announced, the California Energy Commission sent out a letter to industry participants Tuesday detailing new requirements for refinery maintenance that take effect next week. Refiners planning maintenance at their facilities are now required to notify the agency at least 120 days before he event, or within 2 days of discovering the need for the work to be done in the case of short-notice or unplanned repairs.

Valero reported an upset at its Pt Arthur TX refinery that occurred Monday afternoon, impacting both a sulfur recovery and gas recovery unit. It appears that none of the major operating units were forced to slow rates however so should be a non-issue.

Today’s interesting read courtesy of RBN Energy: Why no one seems to care about the NE gasoline reserve being shut down.

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Market Talk Update 06.12.2024

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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