The Wheels Are Off The Energy Bus With Diesel Leading The Way Once Again, Trading Down By More Than 10 Cents

Market TalkWednesday, Oct 4 2023
Pivotal Week For Price Action

The wheels are off the energy bus with diesel leading the way once again, trading down by more than 10 cents in the early going, and now down more than 20 cents for the week. The big slide in ULSD comes after a valiant attempt to erase Tuesday morning’s big losses came up short in the afternoon, in a sign that the bulls may be throwing in the towel.  RBOB futures hit a low of $2.3000 overnight, the lowest level since May 4th

Oil futures are trading down $2/barrel in the early going despite Saudi Arabia confirming its intent to hold voluntary output cuts through year end. The cartel’s leader also noted that it expects global oil demand to continue growing this year and next, and increase by 25% through 2045, which will require investment in all forms of energy. 

Oil traders also seem to be ignoring a 4-million-barrel decline in US inventories reported by the API yesterday, in yet another sign that we may be witnessing money managers bailing out of long positions they’d been steadily accumulating during the rally over the past 3 months. Gasoline inventories saw a build of almost 4 million barrels last week, while distillates saw a small increase of less than 400,000. The EIA’s weekly report is due out at its normal time this morning. 

Adding to the downward pressure on a day when the bears seem to be in control is a report that Russia is already preparing to ease its export restrictions on refined products

For the 2nd time in 3 weeks New England is staring down a tropical storm. Philippe has shifted West over the past 48 hours and is now likely to make landfall in either Maine or Nova Scotia over the weekend based on current projections. The good news is this storm is nowhere near as strong as Lee was in September, the bad news is it seems to be shifting West instead of East like Lee did, which spared the region from most of the potential impact.  While 60 mph winds won’t scare many New Englanders, it will be enough to disrupt vessel traffic for a day or two as it passes, and will bring more heavy rain to the region, which has had plenty over the past month. The storm will also be another headache for workers at Irving’s refinery in St. John NB, which were already delayed in a major maintenance project due to Lee.

Marathon’s Galveston Bay (FKA Texas City) refinery made its seemingly obligatory weekly filing to the TCEQ Tuesday noting an upset at a sulfur recovery unit. That filing came just hours after reports from Energy News Today that the facility had restarted an FCC unit following a fire in early September.

The EIA this morning noted that the US had set a new record for LNG exports in the first half of this year, a figure that should continue to grow in the coming years as new export facilities come online. Monday the agency also highlighted a record in refined product exports, but notably gasoline and diesel fuel exports were both lower on the year as world markets adjusted to the Russia to Europe product flow halt, while a surge in Propane deliveries made up the difference. Those export flows are likely to remain a major story for US refiners over the coming year as they face large capacity additions in Asia, and maybe new facilities in Mexico and Nigeria that could force them to find new homes and perhaps start to refill the domestic tanks that have been running low for the past 2 years.

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

Market Talk Update 10.04.23

News & Views

View All
Pivotal Week For Price Action
Market TalkFriday, Feb 23 2024

The DOE Report Sparked A Solid Rally In Energy Futures Thursday, But That Upward Momentum Proved Short-Lived

The DOE report sparked a solid rally in energy futures Thursday, but that upward momentum proved short-lived as prices gave back those gains overnight, despite US equity markets surging to all-time highs.

The weekly inventory report showed US refiners are struggling to come back online from a busy maintenance season that was further complicated by January’s cold snap and the unexpected shut down at BP Whiting. Refinery utilization held near 80% on the week, which helped pull gasoline inventories lower despite sluggish demand and a surge in imports along the East Coast. Diesel demand showed a big recovery from last week’s ugly estimate, and when you factor in the missing 4-5% that doesn’t show up due to RD not being included in the reports, actual consumption looks much healthier than the report suggests.

Based on reports of restarts at several major refineries this week, we should see those utilization numbers pick up in next week’s report.

The EPA Thursday approved year-round E15 sales in 8 corn-growing states, despite the fact that the extra ethanol blends have been shown more to pollute more in the warm times of the year. The effective date was pushed back a year however in a show of election-year tight rope walking, which the EPA couched as ensuring that the move wouldn’t lead to a spike in fuel prices this summer.

Of course, the law of unintended consequences may soon be at play in a region that tends to be long gasoline supply for large parts of the year. Removing 5% of the gasoline demand could be another nail in some of the smaller/less complex refineries’ coffins, which would of course make fuel supply less secure, which contradicts one of the main arguments for making more 198 proof grain alcohol and selling it as fuel. Ethanol prices meanwhile continue to slump to multi-year lows this week as low corn prices continue to push unusually high production, and the delayed effective date of this ruling won’t help that.

While Nvidia’s chip mania is getting much of the credit for the surge in equity prices this week, there was also good news for many more companies in reports that the SEC was planning to drop its requirements on Scope 3 emissions reporting which is particularly useful since most people still can’t figure out what exactly scope 3 emissions really are.

In today’s segment of you can’t make this stuff up: The case of chivalry gone wrong with the BP/TA acquisition, and a ketchup caddy company caught spoofing electric capacity.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action
Market TalkThursday, Feb 22 2024

Week 7 - US DOE Inventory Recap

Pivotal Week For Price Action
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.