August 20, 2014
Impending CVR Refinery Restart Spurs Selling in G3 Mogas; Prices Down 4cts

Bulk trade in Group 3 sub-octane gasoline abruptly turned lower Wednesday afternoon, with word of the ramping up of several processing units at CVR Energy's 115,000-b/d refinery in Coffeyville, Kan., ahead of a planned facility- wide start up next week pushing sellers into action, according to market sources. Prices and cash differentials alike were off around 4cts/gal at presstime.

Prompt sub-octane "V-grade" gasoline was confirmed trading in quick succession down from 7.5 to 9cts/gal below September RBOB futures last, slashing cash differentials by 4.5cts/gal from Tuesday's close and breaking prices away from Merc advances of just under a penny. Implied outright prices were nearing $2.6125/gal at last glance, scraping back toward two-week lows.

Sources mentioned through last week that continued downtime at CVR Coffeyville had kept some support in place for prompt barrels, although the promise of a restart towards the end of August was connected with steep backwardation in the market. However, that spread -- which at the start of Wednesday's session saw any-August barrels price 4cts/gal cheaper than prompt -- closed quickly today when motivated selling emerged amid word of early restart activities at the Coffeyville refinery.

Midwest trade sources said this afternoon that multiple processing units at CVR Energy's Kansas plant were restarted Wednesday, including a portion of the crude distillation unit (CDU), a coker and a hydrotreating unit.

A CVR Energy spokesperson could not be reached for comment at presstime.

The company previously notified the Kansas Department of Health and Environment
(KDHE) that the Coffeyville refinery was expected to restart fully on or around Aug. 27, KDHE Communications Director Sara Belfry confirmed with OPIS Wednesday afternoon.

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July 31, 2014
EIA: May Gasoline Demand Above 9 MBD; First Time for Month Since 2010

The final U.S. gasoline demand tally for May just issued by federal energy number crunchers was a sturdy 9.016 million b/d, almost half a percentage point higher compared to April and to May of 2013.

Perhaps more importantly, the monthly report from the Energy Information Administration showed the marquee fuel returning to the 9-million-b/d mark in the month of May for the first time since 2010. Amid signs of stronger growth and rising consumer demand across the board, many are hopeful of similarly healthy fuel consumption going forward, especially for what remains of the summer driving season.

Some market watchers remain skeptical, apparently spooked that May's final demand number was revised 130,000 b/d (or 1.4%) lower versus demand implied from weekly measures of implied gasoline demand. They hold that the peak weeks for 2014 gasoline demand have come and gone.

That said, it seems unlikely that EIA's final gasoline demand number for June would see as large a downward revision. Reducing the preliminary measure of 8.974 million b/d by 1.4% would take demand for the month to a level not seen since 2001.

A final reckoning for June demand at something north of the 9-million-barrel mark would take an upward revision of less than 30,000 b/d. As reported by OPIS in early July, EIA appeared to have underestimated actual demand for April, revising the month's gasoline demand tally higher by 321,000 b/d, to 8.979 million b/d.

Fuel marketers may draw some encouragement from data on American road traffic, which is showing signs of resuming an upward trajectory after the 2008 Great Recession and very sluggish recovery.

According to the Federal Highway Administration, vehicle miles traveled (VMT) in April hit their highest level ever for the month. The measure was 254.9 billion, up 0.8% versus the 252.7 billion seen in April 2007. VMT measure travel by private automobiles, vans, pickups and motorcycles.

VMT for May 2014 at 264.2 billion were the highest seen since May 2007 but still fell 1.3% short of that peak level (267.7 billion). Notably, VMT in one of the densest-populated regions of the U.S. -- the Northeast -- have fallen year-on- year for seven consecutive months.

Still, because of rising fuel efficiency in vehicles rolling off of production lines and growing U.S. sales of those new vehicles, the correlation between VMT and gasoline demand appears to be loosening. Even if Americans were to take to the roads in greater numbers, the influx of more fuel-efficient vehicles likely means less frequent refueling for a growing portion of the vehicle pool.

The University of Michigan Transportation Research Institute reports that the average fuel economy of new vehicles sold in May was 25.6 mpg. Fuel economy for new vehicles is up 5.5 mpg since October 2007. Data from the U.S. Bureau of Transportation Statistics show the average efficiency of all light duty, short wheel base vehicles in the U.S. at 22.9 mpg as of 2007, rising to 23.3 mpg in 2012 (the most recent year for which data are available).

It's difficult to measure how the relationship between VMT and gasoline demand may be changing because of the vehicle pool's rising fuel efficiency, but a historical comparison of gasoline consumption suggests that the long-term trend is irreversibly flat to lower.

When VMT hit their peak for May in 2007, gasoline demand as measured by the EIA was 9.434 million b/d, which is a distant 418,000 b/d or 4.6% above demand in May 2014.

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July 3, 2014
EIA Monthly Numbers Show Surprisingly Robust Gasoline Demand

The conventional wisdom in the downstream petroleum business holds that the Energy Information Administration (EIA) has been overstating gasoline demand for much of 2014. But data that was quietly released by EIA on July 1 suggest that government data gatherers may have actually been underestimating actual demand.

This week saw final monthly data for April 2014, and EIA measured demand that spring month at 8.979 million b/d, reflecting a stunning 295,000-b/d leap from March and a 233,000-b/d increase from April 2013. But even more striking was the difference between gasoline demand levels implied by the five weekly reports that overlapped various April dates. Those weekly numbers suggested demand of only about 8.658 million b/d, or 321,000 b/d less than what now goes into the record books in the higher resolution monthly assessment.

The numbers may offer comfort to analysts who believe that multi-month assessments of gasoline demand often auger well for the U.S. economy. But others have become increasingly uncomfortable with the weekly bulletins that are issued each Wednesday morning. One veteran market watcher cited the tendency for "more noise from the weeklies" that may lower the value or the impact of the Wednesday reports.

The final April numbers represent the highest level for that month's demand since 2010 when gasoline deliveries were estimated at 9.108 million b/d. Since there is normally demand "lift" from April to May and June, the data points to numbers that may consistently be well above 9 million b/d through the driving season.  

When the April numbers are added to the first three months, one can calculate that the first third of 2014 saw gasoline demand of 8.638 million b/d, compared with 8.503 million b/d last year. Projected over an entire year, that 1.59% increase could push 2014 demand up by about 135,000 b/d. The final demand estimate for all of 2013 was 8.774 million b/d.

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July 1, 2014
WTI Slumps in Some Source Markets

WTI futures have withstood some selling pressure in recent sessions, but prices for the benchmark grade near the fields where it is produced in West Texas have slumped.

Sources credit production gains in the Permian Basin that they believe are outpacing predictions, but they also note that refinery issues in the region can strand additional supply. In the last week, OPIS confirmed that Valero had a brief power outage at its McKee, Texas refinery and Phillips 66 has had a coker down at its Borger, Texas, facility.

Yesterday, WTI near Midland, Texas, for August shipment moved several times at an $8/bbl discount to NYMEX futures, putting the value at about $97.75/bbl based on this morning's August futures quote of $105.75/bbl. There was also some September business conducted at a more modest $5.75/bbl off September futures, which based on the September print of $105.10/bbl, works out to $99.35/bbl.

This leads to the rare situation where a company with vacant storage in the area actually could make money by "carrying" the August barrels and shipping them in September, although observers doubt whether any bulk storage is available.

The lower September numbers reflect the view that a couple of additional pipelines that move crude from the Midland area to Houston destinations will come online this summer.

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June 23, 2014
Volatile RIN Values Put Importers of European Gasoline on Defensive

The volatile RIN values in the past week have kept European gasoline arbitrage players on their toes, contributing to the already weak economics for imported cargoes into the U.S. East Coast, traders told OPIS on Monday.

Ethanol RINs jumped to a high of 64-65cts last week, possibly due to confusion over the timing of EPA's release of the final 2014 Renewable Fuel Standard rule. However, RIN retreated early on Monday to about 54cts. RIN was stable at around 30cts earlier this year.

Gasoline importers are required to buy RINs for their imported cargoes from Europe. Based on the current RIN price of about 5.5cts, importers are to pay about 5.1cts/gal for one 300,000-bbl imported cargo.

The higher RIN cost may add only a few cents per gallon to the arbitrage economics, but arbitrage players also have to factor in freight and port costs, supply costs, prices at destinations and time value of money. The arbitrage window for European gasoline imports into the U.S. is viewed as mostly closed early this week.

Apart from the higher RIN value, the New York Harbor physical gasoline market is
receiving a steady inflow from Europe, and a few cargoes remain unsold for late June and early July.

The average gasoline imports into the U.S. in June have been higher than a year ago.

Average gasoline imports for the four weeks ended June 13 were at 723,750 b/d versus 618,500 b/d for the corresponding four weeks in 2013, according to the Energy Information Administration.

Some traders said that there have been some F1 RBOB grade barrels being shipped on Colonial Pipeline to New York Harbor, in addition to the bulk delivery of M2 conventional regular grade.

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June 19, 2014
Analysis: US Export Terminal Projects Offer Outlet to Rising Refinery Output

The U.S. is enjoying a renaissance in domestic oil and gas production, leading to the arguably best refining margins in the past five years and robust refinery utilization rates across the country.

While domestic demand remains mostly flat and restrictions on U.S. coastal shipping, U.S. refiners and natural gas liquids producers are focusing on export outlets. The U.S. allows free exports of oil products, but the current ban on crude exports remains a talking point. To capitalize on this ongoing and growing need for international sales, many logistics companies have jumped on the bandwagon to build new marine docks and export-focused terminals.

Kinder Morgan is building a products export terminal in Houston, and Enterprise is constructing an ethane export facility on the Houston Ship Channel. Sunoco Logistics is to begin exporting propane and butane from its Nederland terminal next year.

The concentration of these marine export outlets are on the Gulf Coast, mainly due to the significantly higher refining capacity than other regions in the U.S. The PADD3 refining capacity is pegged at 9.154 million b/d. The PADD3 refiners are a regular supplier of products to the net-short PADD1 region, but that south-north flow is limited by pipeline capacity and the Jones Act restriction on U.S. coastal shipping voyages.

"Crude production in West Texas and North Dakota is growing, and the demand is not (growing). There is a lack of arbitrage opportunities because of the Brent price premium over WTI," a logistics player said.

"The U.S. is focusing on exports of distillates, other oil products, ethane, propane and butane," he said.

Another player said that there are currently enough marine docks on the Gulf Coast, but additional docks will help reduce the growing waiting time for ships and long lines amid the rising products export trend. It will also help speed up cargo loading and vessel turnarounds, reducing demurrage and improving shipping and arbitrage economics.

Export Is Key

This summer, Kinder Morgan will start construction on its 1.2-million-bb Houston oil products export terminal project near Lydondell refinery. The $169.5-million terminal is scheduled to be operational in the first quarter of 2016.

Kinder Morgan is also building another three to four greenfield marine docks on the eastern side of the Houston Ship Channel for export purposes. Each dock costs $25 to $30 million to build.

Enterprise Products Partners LP will build an ethane export facility on the Houston Ship Channel. Enterprise has signed a 30-year agreement with the Port of Houston Authority for use of facilities adjacent to Enterprise's existing Morgan's Point terminal.

The ethane export facility is expected to begin operations in the third quarter of 2016.

In May, Enterprise loaded the first cargo of refined products for export from its reactivated marine terminal in Beaumont, Texas. Located on the Neches River, the terminal can load at rates up to 15,000 barrels per hour.

Sunoco Logistics is focused on shipping crude at its Nederland terminal for both domestic and international deliveries. U.S. crude exports are mainly for Canada, but in the past year, the U.S. government has granted export licenses for Canadian crude to the rest of the world.

So far, the Canadian crude export flow out of the Gulf Coast remains sluggish despite the license approval. This could depend on international prices and demand. Also, exporters have one year to use the licenses, which are based on value of the total exports.

Apart from crude, Sunoco Logistics is also working on propane and butane exports out of Nederland terminal for next year. The terminal will receive natural gas liquids supply from Mont Belvieu.

In February, NuStar Energy L.P. completed construction of a private marine loading dock at its North Beach Terminal in Corpus Christi, Texas, and had its first ship at the dock to be loaded with crude oil. Originally scheduled to be completed in the second quarter of this year, NuStar expedited the project in order to meet strong customer interest in using the dock to transport shipments of Eagle Ford crude oil by water.

With this new dock, NuStar now has three loading docks in the Port of Corpus Christi, and can load crude oil onto ships simultaneously on all three docks. NuStar also completed major additions and upgrades to the terminal's pump systems. With all of these upgrades, the North Beach terminal's marine loading capacity was more than tripled to 400,000 b/d.

Oiltanking and Houston Fuel Oil Terminal Company have spare marine docks and terminal space which could be used for exports. The U.S. is facing a declining crude import volume, and the fuel oil trading has been lackluster and challenging on a weak demand. Oiltanking is focused on crude storage and HFOTC is on fuel oil and crude.

Trafigura Terminals LLC is an 84-acre industrial site in Corpus Christi, Texas, consisting of approximately 600,000 barrels of storage for crude oil, fuel and condensate. It began construction of a second oil dock in early 2013. Besides crude and fuel, Trafigura terminal is also involved in LPG exports.

In the Northeast, the refiners and logistics players are also seeing a push for oil products, especially distillates, but that outflow is significantly less than the Gulf Coast due to the comparatively smaller refining capacity and the growing local market demand for ultra-low-sulfur diesel.

In the near future, logistics companies are also eyeing possible condensate exports, depending on a lifting of the current export ban. Some players remain optimistic on the lifting of condensate export ban, but there has been no definitive word on that so far.
Also, it is noted that the U.S. is seeing the liquefied natural gas export trend moving forward as more permits are granted for expensive LNG terminal construction.

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