West Coast Diesel Differentials Continue To Surge This Week

Market TalkWednesday, Aug 30 2023
Pivotal Week For Price Action

Oil prices are seeing modest gains to start Wednesday’s session following a big decline in inventories, while refined products are seeing modest losses in the early going with a pair of bearish fundamental notes having ULSD lead the move lower once again. 

Adding to the downward pressure on distillates - that are currently trading down about 13 cents for the week - are reports that China will increase export quotas next month, allowing the country’s newly minted refineries to crank up their sales overseas. The $3.20 range still looks pivotal for ULSD futures as both Monday and Tuesday saw intraday trading below the weekly trend-line near that level, only to settle above. If that recovery trend continues, there’s a good chance of a big rebound in the back half of the week, but it will have to happen soon as we’ll see a 4 cent drop in values when October takes the prompt spot Friday.

The API reported a huge draw in crude oil inventories of more than 11 million barrels, while gasoline stocks increased by 1.4 million barrels and diesel stocks increased by 2.5 million.  The EIA’s weekly report is due out at its normal time this morning and will offer the first glimpse at the actual impact of the numerous refinery issues over the past week that have stirred up both futures and some cash markets.

West Coast diesel differentials continue to surge this week, with San Francisco, LA and PNW markets all trading at or above 50 cent premiums to futures. Gasoline premiums have been holding at high differentials of 60-70 cents over October RBOB futures as the region moves through its last month of summer-grade product with last year’s spike to $2/gallon premiums still fresh on many minds.

Hurricane Idalia reached category 4 status overnight before making landfall in Florida near the Big Bend Wildlife Management Area this morning as a major Category 3 storm. The landfall was roughly 160 miles north of Tampa Bay, which seems to be far enough to have avoided major damage as at least one Tampa Bay terminal has already resumed loading operations this morning. Meanwhile, other terminals across Florida such as Orlando, Jacksonville, Niceville and Pensacola all seem to be operating so far despite the threats of heavy rain and potential power outages.  More potential good news is that the latest projected path has the storm turning east faster than earlier projections which should lessen the time spent over the flood-prone Carolinas. 

We’re still 2 weeks away from the typical peak of hurricane activity, and the NHC is tracking 4 other storms in the Atlantic, though fortunately none of them looks to be a threat to make landfall in the US.

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Market Talk Update 08.30.2023

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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