Concerns Over Refinery Issues Seemed To Be The Major Theme That Sparked The Rush Of Panic Buying Friday

Energy prices are coming back to reality this morning after a runaway Friday rally got a bit out of control. ULSD futures led the way in both directions, adding 15 cents Friday to hit a new 7 month high at $3.3355, before pulling back by 7 cents this morning as cooler heads seem to be prevailing. Despite that pullback, the strong finish last week keeps the door open for a rally towards the 2023 high of $3.58 as long as prices can sustain their move north of $3.20 this week.

Concerns over refinery issues seemed to be the major theme that sparked the rush of panic buying Friday, although the forecast of a Hurricane reaching the Gulf of Mexico probably didn’t hurt even though it’s not a threat to most energy infrastructure.

The big story was a tank fire at Marathon’s 596mb/day plant in Garyville LA, which is the 3rd largest refinery in the country.  Even though the fire was in a storage tank, and not an operating unit, the reports that operations were temporarily suspended as a precaution created a flurry of buying activity just before the settlement Friday. Terminal operations at the plant resumed Friday evening which suggests the fire will not have a lasting impact on operations, which goes a long way to explain the pullback in prices this morning.

Meanwhile, two of the TCEQ frequent flyers both reported upsets Friday. The Valero Mckee refinery reported flaring after a power loss Friday afternoon, which occurred as the facility was attempting to finalize repairs after an upset earlier this month. Marathon’s Galveston Bay facility continues to struggle to go even 1 week without some sort of mishap, this time reporting a fuel oil leak inside a containment dike. Exxon reported an upset at an FCC unit in its Beaumont TX facility overnight that caused brief flaring, but no reported unit shutdowns.  

While the headlines were focused on Gulf Coast activities, the biggest price moves Friday were on the West Coast. Both LA and SF diesel basis saw big increases that pushed differentials and outright prices to their highest levels of the year even though the other US spot markets shrugged off the refinery news.

Tropical Storm Idalia formed off the Yucatan peninsula over the weekend and is expected to become a major hurricane before making landfall near Florida’s big bend early Wednesday morning. The storm is far enough east as it moves quickly through the Gulf of Mexico that it’s not a major threat to oil production and refining assets, although we can expect precautionary shutdowns of some offshore wells the next 2 days. 

Unlike last year’s Hurricane Ian, which spared the Tampa Bay area with a late shift in its path, this storm looks like it will keep Tampa on the eastern side meaning it will be pushing water inland which could be trouble for the terminals around the bay which are right on the water’s edge. Unfortunately, another type of storm at a local terminal has complicated efforts to fill up customer tanks ahead of this system. 

Hurricane Franklin has reached Major hurricane status this morning but is staying roughly 500 miles off of the East Coast as it makes its way north and does not appear to be a direct threat to land, although its high winds and waves could cause some challenges for vessels in the area. There’s another storm system given 50% odds of developing this week by the NHC off the West Coast of Africa, but it looks like it will be far enough north that it should stay out to sea.

Money managers reduced their speculative length (bets on higher prices) on most energy contracts last week with WTI, Brent, RBOB and Gasoil contracts all seeing declines. ULSD prices were the exception with new length added and old shorts reduced, pushing net length up by 17% on the week to a 22-month high. Open interest in refined products continues to increase with ULSD positions now at their highest level in 18-months.

Baker Hughes reported another large decline in the US drilling rig count with a net decrease of 8 oil rigs and 2 natural gas rigs last week. That decline brings the total count to a fresh 18 month low.

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