Chevron and Exxon Reporting Upsets In The Last 24 hours

Indecision continues to be the theme of the week for energy markets that continue to bounce back and forth between small gains and losses throughout the day. Despite several attempted rallies during the middle of the week, as it stands, both RBOB and ULSD are less than 2 cents from where they ended Monday and another down week continues to favor lower prices as we head into winter.

We saw another attempted rally Thursday following the DOE’s weekly report as the government’s estimates for gasoline and diesel demand both saw healthy increases on the week, which helped reduce inventory levels, contrary to the industry estimates for last week. Those gains proved short-lived however as traders seem unwilling to make a big move in either direction with so much uncertainty both domestically and abroad these days.

Chevron reported an unplanned upset at their El Segundo CA refinery overnight caused by a mechanical malfunction. Basis values in the LA market had been ticking up the past few days following upsets at Marathon’s LA refinery complex, and the Chevron news may add to the bidding. The good news for California consumers is that retail gasoline prices have fallen to their lowest levels in 2 years this week, although they’re still about $1.70/gallon above prices in Texas. It’s worth noting that the 2 year lows in retail gasoline prices are happening even though US gasoline inventories reached their lowest level in 2 years last week, which demonstrates the market’s pessimism on demand these days.

Exxon reported upsets at both its Beaumont and Baytown TX refineries in the past 24 hours. The Beaumont issue was caused by a pipe leak in a coker unit, while Baytown reported a pinhole leak in one of its FCC units. Those two facilities are the 2nd and 5th largest in the country, so these upsets will be watched closely for any reaction in basis markets today.

One reason traders won’t panic over those upsets is that PADD 3 refinery runs increased for a 6th straight week according to the DOE’s report and remain above the top end of their seasonal range. The past couple of years we’ve seen Gulf Coast runs top out in early December, and with Houston Refining preparing to shut down in the coming weeks, that topping action will likely be much more pronounced than normal. US ethanol producers are also cranking up production, with output reaching an all-time high last week. See charts below.

While US refiners have been increasing run rates lately, their counterparts overseas continue to struggle. Chinese refinery runs fell for a 7th straight month according to a Reuters report this morning and Russian plants are cutting run rates to avoid losing money, which suggests Ukraine’s drones may be better off targeting facilities that actually want to stay open.

California’s Carbon Allowance (CCA) prices have plummeted this week as traders seem to be doubting CARB’s plans to make the Cap & Trade program more stringent like they’re trying to do with the LCFS program. Yesterday, CARB’s Environmental Justice Advisory Committee released its recommendations for the program which included eliminating any free allowances, and eliminating offsets that have been touted as a cost containment measure. The EJAC also highlighted that if the Cap & Trade program works as it’s intended, the revenue generated from the program will diminish over time, which sums up the Catch 22 with most of these programs quite nicely.