Today Is The Last Trading Day For March RBOB And ULSD Contracts
Gasoline prices are leading the energy complex in another rally Tuesday as refinery issues around the country, on top of an already busy maintenance season have some traders acting like the respite in supply disruptions we’ve become accustomed to over the past year may be coming to an end. While diesel prices have been leading the action for most of the past year, we’re now in the window of the annual spring gasoline rally so it won’t be surprising to see RBOB take the lead more often over the next several weeks.
Today is the last trading day for March RBOB and ULSD contracts. Most regional markets have already transitioned to trading vs the April contracts, but the NYH and Group spots will change today, so watch the RBJ and HOJ contracts for direction today if you haven’t already made the switch. Tomorrow will no doubt create confusion, as it does every year, when the April RBOB contract takes over the prompt position as it is trading at a 20+ cent premium to March futures due to the change in RVP specifications between the contracts and wreaking havoc on basis and rack spreads due to the mismatched timing of pipeline, terminal and retail transitions to summer-grade fuels.
More coast to coast winter storms are keeping drivers off the roads in parts of the country, while the risk of power outage and wind damage will keep some refinery operators on edge for the rest of the week. There were at least 3 different refinery issues talked on the West Coast Monday, and while it’s hard to assess what may be storm related, and what has to do with ongoing spring maintenance, the strong reaction in gasoline basis values left no doubt that traders see a sudden reduction in supply. Both LA and San Francisco spots rallied to 4 month highs Monday, with SF CARBOB values leading the way trading at a 55-cent premium to April futures.
The gulf coast also had several reported hiccups at refineries, with plants in Pasadena, Deer Park, Big Spring and Baton Rouge all said to be dealing with unplanned issues. So far Gulf Coast basis markets are largely shrugging off that news with little change in either gasoline or diesel values.
The EIA took a closer look at the impacts of the Suncor refinery downtime this winter, noting the regional price increases while most of the US was enjoying lower prices. That facility has been in the process of restarting some units over the past couple of weeks, and has been producing some fuel, although there have been numerous leaks and delays along the way. Markets for space on Magellan’s mountain line are still being talked at double digit premiums as suppliers believe it will take at least another month for supplies to heal, but those values are down 40-50 cents from their peak in January.
A suspected drone attack started a fire near a Russian refinery on the coast of the black sea overnight. Given the location of the facility, and the immediate threats to not spread “Fake information”, we’ll probably never know the real cause or effect of this latest attack on Russian energy infrastructure.
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View AllEnergy Markets Rally Again Thursday After A Choppy Wednesday Session
Energy markets are trying to rally again Thursday after a choppy Wednesday session. RBOB gasoline futures are leading the push higher, on pace for a 3rd consecutive day of gains after finding a temporary floor Tuesday and have added 12 cents from those lows.
Equity markets are pointing sharply lower after a weak Q1 GDP estimate which seems to have contributed to a pullback in product prices over the past few minutes, but don’t be surprised if the “bad news is good news” low interest rate junkies start jumping in later on.
The DOE’s weekly report showed sluggish demand for gasoline and diesel, but inventory levels in most markets continue to follow their typical seasonal trends. Refinery runs held fairly steady last week with crude inputs down slightly but total gross throughputs up slightly as most facilities are now back online from a busy spring maintenance season and geared up for peak demand this summer.
Propane and propylene exports spiked to a record high north of 2.3 million barrels/day last week, which demonstrates both the US’s growing influence on global product markets, and the steady shift towards “other” products besides traditional gasoline and diesel in the level of importance for refiners.
The EIA acknowledged this morning that its weak diesel consumption estimates reflected the switch to Renewable Diesel on the West Coast, although they did not provide any timeline for when that data will be included in the weekly survey. The agency acknowledged that more than 4% of the total US consumption is now a combination of RD and Biodiesel, and that number is expected to continue to grow this year. This morning’s note also suggested that weak manufacturing activity was to blame for the sluggish diesel demand across the US, while other reports suggest the freight recession continued through Q1 of this year, which is also contributing to the big shift from tight diesel markets to oversupplied in several regions.
Valero kicked off the Q1 earnings releases for refiners with solid net income of $1.2 billion that’s a far cry from the spectacular earnings north of $3 billion in the first quarter of 2023. The refining sector made $1.7 billion, down from $4.1 billion last year. That is a pattern that should be expected from other refiners as well as the industry returns to a more normal market after 2 unbelievable years. You wouldn’t guess it by looking at stock prices for refiners though, as they continue to trade near record highs despite the more modest earnings.
Another pattern we’re likely to see continue with other refiners is that Renewable earnings were down, despite a big increase in production as lower subsidies like RINs and LCFS credit values sting producers that rely on those to compete with traditional products. Valero’s SAF conversion project at its Diamond Green joint venture is progressing ahead of schedule and will give the company optionality to flip between RD and SAF depending on how the economics of those two products shakes out this year. Valero also shows part of why refiners continue to disappear in California, with operating expenses for its West Coast segment nearly 2X that of the other regions it operates in.
Week 16 - US DOE Inventory Recap
Energy Markets Trading Quietly In The Red As Ethanol Prices Rally To Five-Month High
Energy markets are trading quietly in the red to start Wednesday’s session after a healthy bounce Tuesday afternoon suggested the Israel-Iran-linked liquidation had finally run its course.
There are reports of more Ukrainian strikes on Russian energy assets overnight, but the sources are sketchy so far, and the market doesn’t seem to be reacting as if this is legitimate news.
Ethanol prices have rallied to a 5-month high this week as corn and other grain prices have rallied after the latest crop progress update highlighted risks to farmers this year, lower grain export expectations from Ukraine, and the approval of E15 blends this summer despite the fact it pollutes more. The rally in grain and renewables prices has also helped RIN values find a bid after it looked like they were about to test their 4-year lows last week.
The API reported small changes in refined product inventories last week, with gasoline stocks down about 600,000, while distillates were up 724,000. Crude oil inventories increased by 3.2 million barrels according to the industry-group estimates. The DOE’s weekly report is due out at its normal time this morning.
Total reported another upset at its Port Arthur refinery that’s been a frequent flier on the TCEQ alerts since the January deep freeze knocked it offline and damaged multiple operating units. This latest upset seems minor as the un-named unit impacted was returned to normal operations in under an hour. Gulf Coast basis markets have shrugged off most reports of refinery upsets this year as the region remains well supplied, and it’s unlikely we’ll see any impact from this news.
California conversely reacted in a big way to reports of an upset at Chevron’s El Segundo refinery outside of LA, with CARBOB basis values jumping by more than a dime. Energy News Today continued to show its value by reporting the upset before the flaring notice was even reported to area regulators, proving once again it’s ahead of the curve on refinery-related events. Another industry news outlet meanwhile struggled just to remember where the country’s largest diesel seller is located.
Click here to download a PDF of today's TACenergy Market Talk