Fire and Ice Seems To Be the Theme Of the Day

Energy futures are ticking modestly higher Thursday after more big builds in refined product inventories sparked a round of selling Wednesday.

RBOB futures seem to be a reluctant participant in the buying early on, trailing the gains in diesel by more than a penny, with plenty of demand headwinds over the next several weeks and robust refinery runs both creating a bit of caution among the bulls waiting to jump in on the annual spring gasoline rally.

Fire and Ice seems to be the theme of the day with Los Angeles battling several wildfires as an ice storm sweep across Texas and much of the South East. Right now it appears that the ice will stay north of refinery row along the US Gulf Coast, but power outages will be a concern as heavy rain and wind comes along for the ride.

Valero reported an upset at its LA-area refinery Wednesday morning, but it appears that event had nothing to do with the wild-fires, and the refiners in the area are not in any imminent danger, with most of the fires far to the north and east of those facilities. While the refineries seem to be safe for now, Kinder Morgan was forced to temporarily halt activities on its west line that carries gasoline and diesel inland from the coast as electricity was cut in several areas to try and avoid sparking more fires during high winds.

Chicago diesel prices joined the Group 3 market with heavy selling this week as winter storms keep trucks off the road but refineries keep on producing. Both markets are now trading around 30 cent discounts to futures, which opens up long haul opportunities to neighboring markets if you can find the transportation.

The DOE report showed diesel stocks in PADD 2 are elevated, holding above the 5 year seasonal range, but are below last year’s record setting values the pushed discounts to 50 cents or more below futures.

Refinery runs across the US are sitting at the top end of their seasonal range, with PADD 3 facilities waiting for Lyondell’s pending shutdown of its Houston Refining facility to ensure supplies don’t get too out of hand. Facilities across the country have benefitted recently from the tick higher in diesel prices, but with basis values collapsing in several markets, any margin benefit may soon be wiped out.