OPIS Headlines

June 23, 2016
Global Crude Price Rebound Prediction Intact; Supply Decline, Demand Hike

The global crude price path is expected to maintain a steadily rising path, but not monotonic, through year-end 2018 on the back of increasing product demand growth and shrinking non-OPEC crude supplies, according to Macquarie Capital.

"We remain structurally bullish on global crude due to product demand growth that is currently tracking at 1.5 million b/d and non-OPEC supply declines that are reaching 1.2 million b/d from year-end 2014," the bank said.

The stage remains set for year-end 2016 demand/supply rebalance in the crude market, it said.

Strong demand growth and further sharp declines in U.S. supply are expected to tighten oil balances towards seasonal norms as soon as the fourth quarter of 2016, leading to modest draws across fiscal year 2017, Macquarie said.

A premature crude rally could prove self-defeating if it creates a fast supply response, the bank said. Although the path may prove challenging, the structural outlook remains positive.

Oil prices remain too low to incentivize sufficient reinvestment in supply, and global consumerism will sustain strong product demand growth, it said. Low oil prices may trigger a structural increase in supply disruptions.

Despite the structural positives, the bank expects crude price to make a short- term retracement to the low $40/bbl range due to the return of 2 million b/d of supply from Canada and Nigeria, grossly underappreciated year-to-date Iranian export (1 million b/d) growth and the risk of higher-than-expected Saudi Arabia supply this summer.

Aging of record net length among managed money participants and a strengthening or stabilizing U.S. dollar could keep a lid on crude prices.

A fundamental catalyst that could precipitate a short-term correction is the same one that broke the market in the second quarter 2014: Economic run cuts in European refining.

Macquarie said that while longer lead-time and lower-cost non-OPEC resources have proven remarkably resilient, there was some hope for accelerated base declines sneaking into global offshore supply.

"While we have historically not seen such a response to price from offshore supply, should this effect shift offshore, 2018 crude balances could prove surprisingly tight, even in a significantly higher price environment," it said.

Alternatively, in a $60/bbl WTI environment the bank anticipates in 2018, U.S. onshore could drive nearly 700,000 b/d of production growth. This would reverse the modest supply/demand deficit it anticipates in 2017.

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June 16, 2016
Gasoline Rack Prices even Sloppier than Disorderly Spot Markets

With summer's beginning just a few days away, and gasoline demand matching the all-time record high, spot and futures prices for motor fuel continue to falter.

A hint of that weakness came in the form of very aggressive rack discounts this morning, with particular distress selling in some Midwest, Southwest and Southeastern markets.

While spot prices for Chicago CBOB spent much of the week above $1.60/gal or more and Gulf Coast CBOB around $1.40/gal, OPIS has confirmed discounts at key terminals indicative of the difficulty in "clearing" product downstream from the big spot markets. This morning, before the NYMEX plunge, some suppliers were discounting Chicago, Des Plaines and Lockport, Ill., E10 posted prices by 9- 10cts/gal with rack prices just above $1.61/gal. If one went to Ashland, Ky. -- a market usually impacted by Chicago and Gulf Coast spot markets -- one supplier was discounting E10 down to just over $1.43/gal.

Gulf Coast supplied points were equally under pressure. Knoxville E10 could be purchased for $1.3725/gal, or nearly 5cts gal beneath the OPIS low. Memphis 9- psi gasoline was available at a robust 9.75ct/gal discount, putting E10 there at just above $1.39/gal.

Other Gulf Coast points near refining centers also saw aggressive offers. At least one seller was willing to discount the OPIS Low in Baton Rouge by 3.45cts/gal, resulting in a $1.357/gal posting. In Pascagoula, Miss., OPIS confirmed some unbranded E10 moving at $1.3875/gal, a 5.3ct/gal discount to the low posting.

A couple of Southwestern and Northwestern markets also appeared to have plentiful gasoline. Las Vegas unbranded E10 could be procured for 4.85cts/gal off the OPIS Low, or just over $1.53/gal. In Portland, Ore., implied spot market replacement costs were well above the $1.4375/gal available for E10, which reflected an 8.75ct/gal discount to the low posting.

Spot prices in all corners of the country were down 2-4cts/gal at midmorning, so even lower rack values appear in store for Friday.

Become a better fuel buyer without ever leaving your desk – sign up now for the OPIS Basics of Fuel Buying eLearning course. Taught by 30+ year industry veteran Scott Berhang, this 11-module online training program will guide you through everything you need to know about purchasing physical fuel. Visit www.opisnet.com/events/fuel-buying-online.aspx or call our eLearning team toll-free at 888-301-2645 for more details and to get started.


June 9, 2016
California RFG Gasoline Inventories Draw to 3-Year Low: CEC

Supplies for California's boutique blending reformulated gasoline fell to a three-year low last week after production levels declined while non-California gasoline stockpiles skyrocketed, according to recent statistics released by the California Energy Commission (CEC).

CARB RFG inventories were down 10.5% after declining 510,000 bbl to around 4.36 million bbl the week of June 3, according to CEC. Supply levels for the California specific gasoline grade were last seen that low the week of April 26, 2013. Last year during the corresponding week, CARB RFG supplies were 323,000 bbl healthier at 4.68 million bbl.

The CARB RFG stock draw came in response to lower production rates, as output for the gasoline blend weakened 437,000 bbl last week to 6.4 million bbl. Even with the production slice, that rate was still 380,000 bbl higher than last year during that time.

Meanwhile, supply levels for non-California gasoline were at a record high after building 576,000 bbl to 1.604 million bbl last week. That's more than 79% higher than last year's stockpiles of 894,000 bbl at the time, according to CEC.

Refiners produced nearly 1.36 million bbl of gasoline consumed out-of-state, seeing rates hit a three-year high after increasing 252,000 bbl on the week.

Inventories for gasoline blending components in California reduced 139,000 bbl to hit a fresh 2016 low of 5.277 million bbl. That level was about 1.2 million bbl lower than last year during the corresponding week.

Notably, imports for alkylate and other blending components into the U.S. West Coast have slowed considerably after ExxonMobil restarting key gasoline- producing equipment at its Torrance refinery located in Southern California.

Jet fuel stockpiles in the Golden State drew 135,000 bbl to 1.59 million bbl after refiners drastically reduced output to a 31-month low. California refiners cranked out 1.594 million bbl of jet fuel, which is a production low not seen since November 2013, according to statistics compiled by CEC.

The U.S. West Coast has been relying heavily on a robust jet fuel import schedule, regularly working the arbitrage from the Far East to supply into the region.

Meanwhile, California CARB diesel fuel inventories dipped 35,000 bbl to 2.133 million bbl last week, which was just 115,000 bbl lower than last year during the same week, according to CEC. CARB diesel fuel production was down 35,000 bbl, with California refiners making 1.57 million bbl last week.

Stockpiles for other diesel fuels, consumed out-of-state, increased 96,000 bbl to a four-week high of 1.42 million bbl while weekly output increased 29,000 bbl to 848,000 bbl.

Become a better fuel buyer without ever leaving your desk – sign up now for the OPIS Basics of Fuel Buying eLearning course. Taught by 30+ year industry veteran Scott Berhang, this 11-module online training program will guide you through everything you need to know about purchasing physical fuel. Visit www.opisnet.com/events/fuel-buying-online.aspx or call our eLearning team toll-free at 888-301-2645 for more details and to get started.


June 7, 2016
Wawa Shaking Up Marine Markets in Sunshine State

Florida is the state that accounts for the most consumption of gasoline on the water, and up until last year, Marathon Petroleum was the "Admiral" of marine fuel sales, thanks to its 90-octane recreational gasoline. But Sunshine State marketers say that dominance is sliding dramatically thanks to aggressive offerings on land from independent chain store Wawa's "Boat Fuel" and prices that can afford medium and large sized boat operators savings that often top $100.

Boat owners have largely eschewed ethanol blends in Florida, as is typical in many other states, and Marathon took advantage of this consumer aversion by introducing "recreational gasoline" that contained no ethanol and boasted an octane number of 91. The grade has been incredibly profitable for the refiner, selling for well in excess of $2.00/gal compared with spot replacement costs recently that have averaged about $1.65/gal. In essence, Marathon's Florida premium grades have netted back to high octane spreads that have been in the $30-$40/bbl neighborhood.

The recreational gasoline has been equally profitable for marina merchants. A recent scan of offerings of Marathon recreational gasoline on the water produced retail values in the $3.60/gal neighborhood, affording some marketers rack-to- retail margins well in excess of $1/gal.

But there is now considerable pricing pressure coming from Wawa. The aggressive Middle Atlantic retailer has over 80 large c-stores in the state, and nearly all of them within an hour's drive of the water are marketing an "E0" that is all hydrocarbon with an octane reading of 89. Because all of the stores are fresh, most outlets were built with new tankage that could handle what the company calls "boat fuel".

A glance at "boat fuel" or ethanol-free gasoline at dozens of Wawa stores in the Tampa market, for example, found the fuel selling for $2.69/gal across all stations. The same price held among stations clustered near Fort Myers, beating local marina competition by 60cts to $1/gal. 

The next significant expansion for the chain is slated for Broward, Dade and Palm Beach counties, sources tell OPIS. New stores in those counties are expected to open between now and the end of 2017. Sources say that the stores could be as far south as Homestead and as far north as Palm Beach Gardens in a metropolitan/suburban area that has plenty of population to fund expansion.

In the meantime, some jobbers who've lost substantial slugs of marine business are rife with complaints.

"It's one thing to get competitive with marine fuel on the water," one competitor noted. "It's another thing to have pickup trucks hauling 25 and 50 gallon containers along the highway to save $50 or $100. Weekends look like a 'Mad Max' movie with all these folks moving gas to the boat slips."

Become a better fuel buyer without ever leaving your desk – sign up now for the OPIS Basics of Fuel Buying eLearning course. Taught by 30+ year industry veteran Scott Berhang, this 11-module online training program will guide you through everything you need to know about purchasing physical fuel. Visit www.opisnet.com/events/fuel-buying-online.aspx or call our eLearning team toll-free at 888-301-2645 for more details and to get started.


June 1, 2016
Costco Reiterates Aggressive Plans for Gas Despite Deflation Impact on Sale

A quick glance at Costco's third-fiscal-quarter results (for the 12 weeks ending May 8) might imply that gasoline is no longer a superstar category for the Big Box retailer. After all, fuel deflation this spring kept comparable sales for the huge chain flat or near zero.  And excluding the impact of gasoline, same store "comps" would have been up by about 3% in the U.S. and 8% in Canada.

But Costco Chief Financial Officer Richard Galanti noted today that shopping frequency for the chain was up by about 3% in the quarter, and previous conference calls have noted that fuel is a primary driver of that frequency.
Texas, the Midwest and the Southeast were the strongest regions overall for Costco locations.

Cheap gas also benefited the company in terms of inventory needs. Galanti disclosed that the average inventory per warehouse was down by about $500,000 and said that a good portion of that lower carrying cost was credited to gas.

The company continues to disclose little about actual gasoline margins, which started the quarter on a strong note but ended in May with slimmed-down margins.
Galanti told investment counselors that the company would benefit in the fourth quarter. "We give way more back (in margin) than our competitors on gas and it helps us," he noted.

Costco gasoline on average fetched a price 19.75 lower than the same period in 2015, averaging $2.08 in the recent quarter compared with $2.59 gal last year.
Galanti said comps were still up but stressed that the gains were in the "low single digits" for same stores, compared with volume boosts of about 8% in spring 2015.

Last spring saw a stellar performance from California with price signs that drove gasoline sales and customers from the parking lot into the store. Costco eked out a small margin while selling gasoline in April 2015 well below competitors. This past April, margins have been much higher, but gravitation to cheap gasoline in the Golden State has not been as extreme.

The company will continue to add gasoline as an offering in stores wherever it is feasible. In the U.S., it sells gasoline at 420 of 481 sites and Canadian coverage is at 55 of 90 warehouses. There is more room to grow in Canada and even some instances where U.S. stores are relocated, and transition to larger sites where gas can be offered. Gasoline isn't "as easy to add as five years ago," but it "still moves the needle a little bit," Galanti  added.

Some surprises came with recent openings. Tulsa, Okla., regarded as a medium new market, saw an incredible amount of sign-ups, for example. Costco hopes to add about 30 stores per year through decade's end, but there was no specificity on the metro or suburban areas that would see additions this year.

The big challenge for Costco comes in a few weeks. June 19 will be the last day that American Express cards are taken at U.S. stores, and June 20 will be the first day that Visa plastic is accepted. Costco expects the new co-branded Visa card to be in the hands of members shortly.

Become a better fuel buyer without ever leaving your desk – sign up now for the OPIS Basics of Fuel Buying eLearning course. Taught by 30+ year industry veteran Scott Berhang, this 11-module online training program will guide you through everything you need to know about purchasing physical fuel. Visit www.opisnet.com/events/fuel-buying-online.aspx or call our eLearning team toll-free at 888-301-2645 for more details and to get started.