The Search For Direction Continues In Energy Markets With Diesel Contracts Trying To Lift The Complex Higher

Market TalkTuesday, Jun 25 2024
Pivotal Week For Price Action

The search for direction continues in energy markets with diesel contracts trying to lift the complex higher, while oil and gasoline prices pull modestly lower to start Tuesday’s trading. Brent Crude settled above $86 for the first time in 2 months Monday, with fresh geopolitical tensions as Iran and Hezbollah seem ready to take a bigger role in the war against Israel getting credit for much of the increase, while we saw money managers jumping back in to their bets on higher crude prices in the past week.

The CFTC’s delayed weekly Commitments of Traders report showed funds were much less bullish on NYMEX contracts than they were their ICE counterparts last week. WTI and RBOB contracts saw a net reduction in length held by money managers while ULSD saw its net short position cut in half.

Citgo reported a snag in restart efforts at its Corpus Christi West refinery that had units offline for maintenance and then faced delays following Tropical Storm Alberto last week. The latest filing of flaring at a tail gas incinerator appears to be minor and shouldn’t prevent the startup efforts from continuing this week. Valero reported an upset at its McKee TX refinery impacting the sulfuric acid vent as they were attempting restart this week.

Updates on the 2 new refineries in the Atlantic basin that are posing a major threat to existing facilities already struggling to turn a profit:

A Reuters article this morning confirms what many have already concluded: Mexico’s Dos Bocas refinery is nowhere near ready to produce finished products, despite so many claims to the contrary by the country’s President. The multi-year delays at that facility are good news for US Gulf Coast refiners in particular who depend on Mexico for roughly 50% of their gasoline exports and 20-30% of their diesel exports. Brazil used to account for the largest share of US diesel exports, and now has turned almost exclusively to Russian supplies, making the demand from Mexico even more important to US refiners than it was just a year or two ago.

Meanwhile, the huge Dangote refinery in Nigeria has been producing some limited amounts of distillates and already having an impact on the product flows in the Atlantic. It seems that all is not well at the facility however as the company’s Vice President accused international oil companies of conspiring against the new facility by preventing it from purchasing crude oil to run the plant. While the Dangote refinery is certainly a threat to several refineries, it could also benefit others as it does not seem ready to produce on-spec ULSD or Gasoline, and is instead sending partially refined products abroad for more complex facilities to process, presumably at advantaged prices, and replacing some of the partially refined oil those facilities were buying from the Russians before the full invasion of Ukraine.

The NHC is tracking a tropical system north of Venezuela that is given 20% odds of being named and heading for the SW Gulf of Mexico next week. The low odds and position of the potential development suggest it won’t be a threat to the oil production and refining zones, but it will be watched for a few more days just in case.

Today’s interesting read: A debate on the pros and cons of Ukraine’s attacks on Russian refineries.

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Market Talk Update 06.25.2024

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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.

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

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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