Positive Long-Term Supply Outlook Pressures Energy Futures

Diesel prices are leading the energy complex lower to start Wednesday’s trading, following an optimistic report on global distillate supplies and more inventory builds in the US. 

The IEA’s monthly oil report forecasts global oil demand to grow by 2 million barrels/day this year, nearly half of which is due to China’s reopening. Jet Fuel will lead all other products with rapid growth in flights expected in Asia as a billion people start trying to move again. The report also highlighted the successful impact of price caps on Russian oil, noting that supplies have held up well, but Russia is only averaging about $50/barrel, and its fiscal revenues have dropped by 48% from a year ago. IF the new embargo and price caps on diesel go as well as the restrictions on crude oil, the agency thinks the world may weather the storm much better in 23 than it did last year. The report also was the latest to note that there is heavy refinery maintenance scheduled over the next couple of months that may keep supplies tight.

The API reported a huge build in crude oil inventories of more than 10 million barrels last week, even though no oil has been released from the SPR for over a month. That huge build may be a sign of the start of spring maintenance at numerous refineries, or perhaps an anomaly on the import/export flow. Refined products both saw modest builds of 846,000 barrels for gasoline and 1.7 million barrels for diesel. The DOE’s weekly report is due out at its normal time this morning and will be delayed a day next week due to President’s Day.

After more than 13 years of research, Exxon is reportedly walking away from its efforts to turn algae into biofuels, in the latest example of just how challenging it is to find a legitimate replacement for hydrocarbons.

Today’s interesting read: How the looming startup of the Dangote refinery in Nigeria could create structural shifts in the flow of oil and refined products, and the ships that move them.  The main question being when exactly that facility will begin operations. The plant has been in construction for more than a decade and was originally scheduled to come online in 2019.  Current estimates are for startup between Q1 and Q2 of this year.

There were 3 different refinery upsets reported to the TCEQ yesterday, Marathon’s El Paso refinery was forced to reduce runs after high winds caused power issues to that plant, which will only add to the strain of the supply network in the region that’s already been dealing with numerous planned and unplanned refinery outages.  Meanwhile, the Motiva Port Arthur refinery and P66 in Sweeny TX both reported unit upsets, although the cause or impact are still unclear and so far, seem to have little if any impact on basis values.

The award for meaningful refining upset of the day once again goes to the state of California, which saw gasoline basis values jump more than 10 cents, and diesel diffs rally by a nickel following yet another facility reportedly being forced to take a unit offline for unscheduled repairs.

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