Winter Storm Impacts Refinery Production

Market TalkTuesday, Feb 16 2021
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Refined products are seeing large gains this morning after more than 20% of the country’s refining capacity was forced to shut after most of the country was literally and figuratively frozen by record-setting cold temperatures. 

This winter storm is now rivalling Hurricane Harvey for its impact on refinery production, and may well surpass that storm when all is done as another day of cold & snow is forecast before things start to warm up. The impacts of this storm are much more widespread, with refining disruptions in PADDs 2, 3 and 5 all reported so far as power outages stretch from the West Coast to the Gulf Coast and now to the East Coast. 

The list below details the plants that are said to be shutting down until power and temperatures stabilize. Note that so far the Louisiana refineries seem to have missed the worst of the cold and are continuing to run, whereas most plants surrounding Houston area are having to cut back. 

In addition to the refinery disruptions, Explorer pipeline was forced to shut operations due to power problems around Houston, and is expected to attempt a restart Wednesday. So far Colonial pipeline operations are said to be continuing as normal, which is critical to keep this even from causing localized supply shortages to widespread outages. 

RBOB gasoline futures were up by 10 cents in overnight trade, but have pulled back to “only” up seven cents this morning, while diesel prices are up around four cents. It’s worth noting that RBOB futures came within a penny of the high trade set last January in the wake of Iran’s attack on U.S. troops, which creates a big resistance layer on the charts right around the $1.80 mark. If knocking 1/5th of the country’s refining capacity offline isn’t enough to break that resistance, we could see this as a major selling opportunity and prices could easily pull back 25-30 cents in the next several weeks.

Another thing that’s probably keeping the price rally from picking up too much steam in the early going is that large portions of the population are hunkering down indoors and avoiding the roads for a few days, which is creating huge spikes for electricity and natural gas demand, but is probably doing the exact opposite for gasoline consumption.  

Similar to what we saw during the record-setting hurricane season in 2020, the reduced demand and excess refining capacity sitting idle caused by COVID seems to be acting as a buffer against a more dramatic spike in prices. It will probably be another couple of days before damage assessments can be done, but with warmer temperatures ahead, there’s a good chance most of these refineries will be starting back up before the weekend.

Crude oil futures rallied north of $60 Monday after one million barrels/day of production was expected to close due to the storm, but are giving back most of those gains this morning as three million barrels/day of crude oil demand is temporarily off-line due to the rash of refinery closures.

Today’s interesting read: Cleaning up after a 150 year old refinery

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

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Energy Markets Are Ticking Modestly Higher Heading Into The Easter Weekend With Crude Oil Prices Leading The Way Up About $1.25/Barrel Early Thursday Morning

Energy markets are ticking modestly higher heading into the Easter Weekend with crude oil prices leading the way up about $1.25/barrel early Thursday morning, while gasoline prices are up around 2.5 cents and ULSD futures are about a penny.

Today is the last trading day for April HO and RBOB futures, an unusually early expiration due to the month ending on a holiday weekend. None of the pricing agencies will be active tomorrow since the NYMEX and ICE contracts are completely shut, so most rack prices published tonight will carry through Monday.

Gasoline inventories broke from tradition and snapped a 7 week decline as Gulf Coast supplies increased, more than offsetting the declines in PADDs 1, 2 and 5. With gulf coast refiners returning from maintenance and cranking out summer grade gasoline, the race is now officially on to move their excess through the rest of the country before the terminal and retail deadlines in the next two months. While PADD 3 run rates recover, PADD 2 is expected to see rates decline in the coming weeks with 2 Chicago-area refineries scheduled for planned maintenance, just a couple of weeks after BP returned from 7 weeks of unplanned repairs.

Although terminal supplies appear to be ample around the Baltimore area, we have seen linespace values for shipping gasoline on Colonial tick higher in the wake of the tragic bridge collapse as some traders seem to be making a small bet that the lack of supplemental barge resupply may keep inventories tight until the barge traffic can move once again. The only notable threat to refined product supplies is from ethanol barge traffic which will need to be replaced by truck and rail options, but so far that doesn’t seem to be impacting availability at the rack. Colonial did announce that they would delay the closure of its underutilized Baltimore north line segment that was scheduled for April 1 to May 1 out of an “abundance of caution”.

Ethanol inventories reached a 1-year high last week as output continues to hold above the seasonal range as ethanol distillers seem to be betting that expanded use of E15 blends will be enough to offset sluggish gasoline demand. A Bloomberg article this morning also highlights why soybeans are beginning to displace corn in the subsidized food to fuel race.

Flint Hills reported a Tuesday fire at its Corpus Christi West facility Wednesday, although it’s unclear if that event will have a material impact on output after an FCC unit was “stabilized” during the fire. While that facility isn’t connected to Colonial, and thus doesn’t tend to have an impact on USGC spot pricing, it is a key supplier to the San Antonio, Austin and DFW markets, so any downtime may be felt at those racks.

Meanwhile, P66 reported ongoing flaring at its Borger TX refinery due to an unknown cause. That facility narrowly avoided the worst wildfires in state history a few weeks ago but is one of the frequent fliers on the TCEQ program with upsets fairly common in recent years.

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

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Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

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