This Year’s Figures Were Eye Popping And Led To The Largest Weekly Increase In Gasoline Stocks In Over 30 Years

Energy bulls are trying for another rally to start Friday’s trading, after a bearish DOE report threw cold water on their plans to start the new year on a strong note. Yesterday’s big reversal pushed prices back into neutral territory, suggesting more choppy action in the days ahead as we search for direction.

The week between Christmas and New Year’s is always tough on demand, but still this year’s figures were eye popping and led to the largest weekly increase in gasoline stocks in over 30 years. Diesel inventories also swelled more than 10 million barrels on the week, pushing total US inventories to a 2-year high. Total refinery runs continued to tick higher on the week, as plants show no signs of slowing down despite the correction in margins last quarter. 

The BLS reported an increase of 216k jobs in December, while the headline unemployment rate ticked lower to 3.7% while the U-6 unemployment rate (which doesn’t discard as many people) ticked up .1% to 7.1%. The jobs estimate for October and November were both revised lower, marking 10 straight months of downward revisions, which of course will keep the conspiracy theorists busy. Anyone that pays attention to the weekly DOE reports knows that accounting struggles are nothing new for the FEDs. 

Speaking of which, we saw another big swing higher in the crude oil adjustment factor from the DOE last week, which helped limit the year-end draw down in US crude oil stocks. The agency admitted last year that the lack of clarity on other oil products that are largely a bi-product of fracking, had caused a severe understatement of US oil production and overstatement of total petroleum demand for years, and the corrections are still apparently working their way through the report.     

For real this time?  The CEO of Pemex said its new Dos Bocas refinery would begin producing on-spec products at the end of January and would run at an average rate of 243,000 barrels/day this year before reaching its capacity of 320,000 barrels next year. This announcement came less than a week after Pemex was ordered to seize the hydrogen plant at another refinery from Air Liquide. Perhaps Mexico’s president should ask Venezuela how seizing assets from the experts turned out for them before continuing this trend, particularly given Hydrogen’s critical role in producing low Sulphur fuels.

Another country not particularly known for honest business dealings is making big promises again this week. Nigeria’s new Dangote refinery was reportedly taking in more crude shipments this week as it brings the facility online, with expectations of producing on-spec fuels in February. These two new refineries – both of which are years behind schedule and billions over budget – could tip the world into an excess capacity position IF they ever come fully online this year. Of course, Mexico’s asset seizures, and cartel violence and Nigeria’s ongoing ethnic and religious wars certainly aren’t encouraging international cooperation with their efforts. 

Meanwhile, both Chevron and Exxon announced this week that they were taking multi-billion dollar write downs on their assets in California due to “challenges in the state regulatory environment.” It’s worth noting that there’s not any new California policy in place (so far) this year driving that decision, so it’s likely this is more of a year-end financial planning move that may limit their tax exposure, while also taking advantage of getting some distressed assets written down in a very strong year where that move will be less painful to shareholders. In a CNBC interview this morning, the US Energy secretary was hard pressed to answer how the rest of the country could avoid California’s high gasoline price fate if the federal push to EV’s continued. 

More potential bad news for some US refiners: The Trans Mountain Corp plans to being line fill operations for its new crude oil pipeline in the next few months, that will alleviate shipping bottlenecks that have afforded significant economic advantages for years to many refineries. The PADD 2 facilities who are already facing high inventory levels and low basis differentials look the most vulnerable to this change. See the PADD 2 inventory charts below to see why this could be a long winter for suppliers in the Mid Continent.

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