stocks

Thanks to the shale revolution, U.S. refiners have spent the better part of the last two years achieving milestones in export volumes and run rates. The U.S. exported record volumes of gasoline and diesel last year. Much of that newfound international market share came at the expense of ailing refining complexes in Latin America, particularly in Mexico. That worked out great for U.S. refiners on the Gulf Coast, who could load up a tanker of fuel and have it delivered within a matter of days. Now the market on both sides of the border is shifting; the political landscape has changed in Mexico and gasoline demand growth in the U.S. is threatened by higher oil prices. Today, we lay out factors impacting exports and demand in the U.S. gasoline market.

The prospects for an ever-expanding boom in propane exports from the U.S. Gulf Coast are dimming, even as export volumes stand at near-record levels and as new export capacity continues to come online. Why? It comes down to supply and demand.  With oil and NGL prices at today’s levels, propane production is leveling off, not rising, and U.S. Gulf Coast domestic demand for propane will be increasing—from new propane dehydrogenation (PDH) plants and propane’s use in ethylene steam crackers—at the same time that export volumes out of the East Coast are quadrupling.  In today’s blog we consider the possibility that what goes up must come down.

Blood, Sweat & Tears 1969 hit, Spinning Wheel tells us: “What Goes Up, Must Come Down”, and U.S. propane stocks are no exception.  Having built to a record 106 MMBbl the week of November 20, 2015, (according to the Energy Information Administration – EIA), storage congestion became the topic of the day, but while this record is noteworthy, what is far more significant is the rapid descent propane stocks have taken since late November in spite of the 2015-16 El Nino “winter of no winter”.  This is the second non-winter that the U.S. has experienced over the past five years, the last one occurring in 2011-2012. However, there are big differences in today’s market dynamics relative to 5 years ago, namely propane exports to the tune of 850 Mb/d.    In today’s blog, we’ll walk through the market dynamics that have resulted in extremely steep propane stock draws since late November 2015. 

Yesterday (April 30, 2014) the Energy Information Administration (EIA) reported yet another increase in Gulf Coast inventories as of April 25 - adding 5.7 MMBbl to set a new record of over 215 MMBbl of crude. Stocks in the region are now 27 MMBbl above the 5-year average and even if refiners cranked up output to the highest levels ever (96.5 percent utilization) the surplus would take at least 3 months to get back to “normal”. Crude prices are being impacted as the premium of Light Louisiana Sweet (LLS) crude at the Gulf Coast over West Texas Intermediate (WTI) delivered to Cushing, OK has narrowed close to $2/Bbl. With no crude exports allowed to ease the surplus it looks like Gulf Coast prices will remain under pressure. Today we look at prospects of reducing the crude surplus.

It looks like a combination of shale crude oil production and inventory drawdowns have been backing out crude oil imports over the past two months.  Gulf Coast refineries are leading the way to crank up utilization, increase diesel exports and pull crude oil inventories down from the stratosphere.  A lot of this activity seems to be bypassing Cushing. Meanwhile the Gulf Coast is at the center of two big events this week – a tropical storm and a huge refinery fire.  Today we continue our analysis of crude inventories.

NYMEX Gasoline futures closed down two cents at $2.62/Gal today. The NYMEX gasoline contract is now down 23 percent since the middle of March. Refiners on the East Coast are heading for the exits. Will gasoline demand recover this Summer?  In today’s blog “No Apparent Demand – US Gasoline Thirst Evaporates” we take a closer look at the fundamentals.