Some Major Fla. Gasoline Markets See Narrowing Price Inversion on Resupplies
The price inversion between branded and unbranded gasoline is weakening in some major Florida wholesale markets as resupplies trickle in, but the smaller markets continue to struggle with significantly higher unbranded prices.
The Miami and Port Everglades gasoline supply/demand balance is slowly returning to normal, thanks to diverted European cargoes unloaded at the terminals at end- November and early December. Tampa and Orlando continue to face a tight supply, but both comparably less-liquid Florida markets are expected to get resupplies later this month.
In Miami, Valero's branded and unbranded gasoline prices are almost at parity on Wednesday, and Shell's branded is about a penny higher than unbranded.
This is according to OPIS daily rack price data.
Citgo's unbranded gasoline is holding a 15ct premium over branded, and Marathon's branded gasoline is about 3cts higher than unbranded.
In Orlando, the price inversion between branded and unbranded gasoline remains wide at as much as 26cts/gal on Wednesday, with the branded product at a sharp discount.
Citgo has the deepest price inversion at 26cts/gal on Wednesday, followed by Valero at 16cts/gal, Shell 16cts/gal and Marathon 14cts/gal.
While Citgo continues to see a deep price inversion at Orlando, Valero, Shell and Marathon have narrowed the price gaps from a range of 20-24cts/gal seen a week ago.
All Florida price quotes are for CBOB blended with 10% ethanol.
The lowest branded rack price in Orlando was offered at $2.6740/gal by Chevron on Friday, which is 27.64cts/gal below the highest unbranded price offered by TransMontaigne at $2.9504/gal.
The severe price inversion has resulted in branded retail sites having a lower supply cost and possibly wider retail margin than unbranded sites. For unbranded sites, some retailers are forced to sell below supply cost to compete with the branded sites on the street.
The Southeast market has experienced some nagging supply issues in the past two months because the summer to winter spec transition for gasoline. The sluggish deliveries from the Gulf Coast have compounded the supply problems recently.
In a rack price inverted market, it is common for suppliers to serve and accommodate its branded customers first because of the tight supply.
Unbranded customers could be left stranded without fuel or on strict volume allocations on a daily basis.
OPIS reported on Nov. 22 that the diversion of New York-bound gasoline cargoes to the Southeast doubled to 1.8 million bbl from 900,000 bbl, but the much- needed resupplies would not reach the wholesale markets down south until early December.
December 2, 2013
Morgan Stanley Sees Downside Risk for Oil Peaking in 2014-2015
Investment house Morgan Stanley believes that the greatest risk for global oil prices will come next year and in 2015. But in a newly issued 88-page research report, bank researchers argue that the bottom for world oil prices (Brent) is probably in the $95-$100/bbl neighborhood, or about $15/bbl below current numbers.
Researchers do not paint a particularly challenging agenda for OPEC, despite some of the downward pressure likely in the next 24 months. The cartel has publicly stated its preference for $100/bbl (or higher) oil, and bankers believe key member Saudi Arabia could produce at lower rates to "better manage" declining numbers. The investment house does not see global oil prices averaging below $90-$95/bbl for any extended period.
Pressure on relatively lofty recent 2012-2013 numbers will come thanks to non- OPEC crude oil growth that should "far outpace demand," Morgan researchers admit. But the bank argues that the shale boom is merely a temporary solution to the ongoing global energy challenge. Global oil balances could firm later in the decade as oil shale fields decline and the E&P project pipeline becomes leaner. Any weakness in prices could quickly hasten demand growth as well as strengthen GDP growth, which in turn would boost emerging markets' demand.
The downside risks appear to be "front-end loaded" according to the bank. Researchers do believe that net global crude and NGL growth could total 6.9 million b/d and bring world capacity to 98.8 million b/d in 2018.
Morgan Stanley does note some unlikely but relevant downside risks. Those risks include the unraveling of the OPEC cartel due to internal frictions, as well as demand substitution and geopolitical risk. But those risks are somewhat offset by a challenged Iran, widespread Nigerian production outages and the lack of any near-term production upside for war-ravaged Libya. Researchers build a base case, as well as a bearish and bullish case, but the entire range of price projections fits within $90/bbl to $120/bbl.
Pains are taken to demonstrate that the ongoing shale oil boom in North America is not likely to be duplicated elsewhere in the world, at least in this decade.
Shale plays from "tight oil" offer a reprieve, but won't leave the world "suddenly awash in crude oil." Even the bank's admittedly robust forecasts require that a staggering 2,000 to 3,000 new wells be drilled per year in the major plays (Eagle Ford, Bakken, Permian). No other country has the capability of matching U.S. efforts -- the U.S. completed 45,468 oil and gas wells in 2012 compared with 3,450 in Canada and 3,921 in the rest of the world in 2012.
Researchers believe that there will be buzz about other countries looking for shale, but those efforts are unlikely to be scalable to meaningful levels.
Russia and Argentina, for example, have geology that present strong shale prospects, but incredibly, Morgan Stanley forecasts that Russian shale will only contribute about 10,000 b/d to world oil markets in 2018.
Interestingly, the global research team appears ready to get off the diesel bandwagon and adopt a stronger view for gasoline.
"Diesel has been the constrained part of the oil barrel for some time. However, gasoline demand is rising quickly in the non-OECD, and new refineries are not configured to produce it." Several years from now, gasoline could be a tight global product and drive global oil demand, the bank adds. Researchers observe that a worldwide gasoline shortage is possible over the long run, thanks to global refiners maximizing diesel yields at the expense of gasoline. Chinese gasoline demand growth, for example, has been quietly outpacing diesel growth since 2011.
November 21, 2013
Magellan Extends Open Season for Arkansas Products Pipeline for Third Time
Magellan Midstream Partners LP said late on Wednesday that it has extended for the third time the open season to solicit capacity commitments from shippers to transport refined petroleum products to Little Rock, Ark.
Magellan said that its management is currently in advanced discussions with potential shippers and remains optimistic about the prospects for this project.
Binding commitments are now due by 5:00 p.m. Central Time on Dec. 13, 2013. The extension provides potential shippers additional time to make commitments.
As previously announced, Magellan is assessing customer interest to transport up to 75,000 b/d of gasoline, diesel fuel and jet fuel from the partnership's Fort Smith, Ark., terminal, providing the Little Rock market access to refined products from Midcontinent and Gulf Coast refineries via Magellan's extensive refined petroleum products pipeline system.
The potential project includes construction of an approximately 160-mile, 12- inch diameter pipeline from Magellan's Ft. Smith terminal to the Little Rock market.
Subject to the results of this open season and receipt of the necessary permits and regulatory approval, the potential pipeline could be operational in the third quarter of 2015.
Meanwhile, OPIS reported that potential shippers remained uncommitted to long- term shipping contracts with Magellan for a new pipeline which would be in service two years from now.
Apart from the long-term commitment, shippers said that there is also a possibility of Enterprise allowing interstate distillates shipping on its pipeline system again in the future when the Canadian crude market evolves.
The third extension of the open season also signals the ongoing discussion and uncertainty about the long-term viability of the fuel shipping economics, the potential shippers said.
Many potential shippers on that new pipeline are considered small-volume shippers, and would be unwilling to commit to a long-term shipping contract due to the potential risk and future market uncertainty, they said.
Major shippers would be interested to discuss and negotiate with Magellan on contract term and shipping flexibility, but they also said that the shipping economics from Fort Smith to Little Rock are no slam-dunk.
While flexibility may not line up well with commitments in shipping contracts, shippers may be looking for some wiggle room in shipping volumes and length of contracts.
So far, some suppliers in Little Rock have resigned to sit out in the Little Rock distillates rack market due to costly trucking costs to receive resupplies.
Trucking cost from Fort Smith to Little Rock is pegged at about 7-8cts/gal.
Besides trucking from Fort Smith and Memphis, two companies are offering products deliveries via barges from the Gulf Coast to North Little Rock.
Midcon Fuel will operate out of the existing Safety-Kleen terminal at the Port of Little Rock, and Future Fuel is operating at Center Point's North Little Rock terminal at Gribble Street
Barge delivery is expected to be competitive with trucking at less than 10cts/gal.
November 7, 2013
Gavilon Energy Back on Growth Track after Sale
Gavilon's refined products, biofuel and NGL businesses will finally get back on the growth track after the company's sale to NGL Energy Partners earlier this week, industry sources told OPIS on Thursday.
The energy division was stuck in limbo in the past few months as the company was negotiating with potential buyers on the asset sale. However, the sale process progressed quickly, taking only about three months to find a buyer.
NGL Energy Partners will acquire all of the equity interests of Gavilon LLC, the diversified midstream energy business owned by funds managed by Ospraie Management, General Atlantic and Soros Fund Management for $890 million. The deal is expected to close in December.
Gavilon Energy was put up for sale in July, following the sale of all of Gavilon's assets, except its energy business, to Marubeni Corporation for $2.7 billion. Gavilon is a regular supplier at the U.S. wholesale fuel markets.
While Gavilon offers synergistic value with its crude and NGL marketing and storage operations, NGL Energy, a predominantly midstream company, will be able to expand to the downstream wholesale fuel market for the first time, sources said.
According to a presentation on the Gavilon acquisition, NGL Energy Partners estimated Gavilon's marketing and supply of gasoline and diesel at 94,000 b/d shipped. Gavilon also has access to 230 fuel distribution terminals.
Gavilon also offers marketing and supply of ethanol and biodiesel at 9,000 b/d shipped. This includes blending of ethanol and biodiesel with refined products.
On NGL, Gavilon provides wholesale marketing of propane at 12,000 b/d. The company purchases propane in bulk and sells to wholesale customers for industrial, commercial, residential or agricultural applications. Gavilon has access to over 80 NGL terminals.
Gavilon has a national presence of over 300 out of the 1,200 available fuel distribution terminals nationwide.
NGL Energy said that it plans to retain all Gavilon personnel, expanding the talent base at NGL Energy. NGL Energy will also adopt Gavilon's transition service agreement, which extends through Dec. 31, 2014.
NGL Energy also highlighted the synergistic value of Gavilon in the crude and NGL markets. Gavilon will provide NGL Energy with fee-based infrastructure assets.
NGL Energy owns railcars, trucks and barges while Gavilon currently leases such assets. NGL Energy said that combining of the two companies provides organic growth and reduced operational risk in this segment.
Also, Gavilon's assets are strategically located and highly complementary with NGL's operations. Gavilon's natural gas liquids and crude operational footprint spans across numerous prolific, liquids-focused basins -- Bakken, Niobrara, Anadarko, Permian, Eagle Ford, Granite Wash and Mississippi Lime.
Gavilon principally operates integrated crude oil storage, terminal and pipeline assets located in Oklahoma, Texas and Louisiana, along with a complementary crude oil and refined products supply, marketing and logistics business (SM&L).
Gavilon's crude oil assets include a 50% interest in Glass Mountain Pipeline, 4.14 million owned and 3.85 million leased barrels of storage in Cushing, Okla., a marine terminal and nine truck terminals including more than 22 lease automatic custody transfer (LACT) units.
Through its SM&L business, Gavilon also leases a network of over 200 trucks, 350 railcars and eight barges to transport crude oil for customers.
November 6, 2013
Delek: Refining Margins Have Improved Since
End of Third Quarter
Delek US Holdings Inc. (Delek or Delek US) on Wednesday announced financial results for third quarter 2013.
For third quarter 2013, Delek US reported a net loss of $(1.7) million, or $(0.03) per basic share, versus net income of $94.5 million, or $1.57 per diluted share, in third quarter 2012.
Lower earnings were primarily due to the refining segment, as a combination of factors in third quarter 2013 created less favorable market conditions compared to the prior-year period.
A decline in the 5-3-2 Gulf Coast crack spread, an increase in crude oil prices, and backwardation of the crude oil futures market all contributed to a decline in refining margins on a year-over-year basis. In addition, market dynamics were negatively affected by RINs in July and August, reducing gasoline netbacks in areas served by the El Dorado refinery in Arkansas. The year-over- year decline in the refining segment performance was partially offset by improved retail and logistics segment results compared to third quarter 2012, Delek reported.
During third quarter 2013, net income was also negatively affected by approximately $4.0 million after-tax, or $0.07 per share, primarily due to inventory mark-to-market adjustments and a combination of other costs related to acquisitions, a higher tax rate and costs associated with financing-related activities.
Since the end of third quarter 2013, market trends in the refining segment gradually improved through October, Delek reported. The 5-3-2 Gulf Coast crack spread averaged $10.02/bbl during October, which included a high of $13.00/bbl on Oct. 30. This compares to an average of $7.71/bbl in September, which included a low of $4.73/bbl on Sept. 9.
In addition, the crude oil price discount between WTI Midland and WTI Cushing widened to approximately $4.00-$5.00/bbl during late October, compared to levels that were near parity in the third quarter. Also, there was a gradual decline in the price of WTI Cushing to below $100/bbl in late October, compared to $105.94/bbl in the third quarter.
Furthermore, crude oil futures markets moved from backwardation to contango during October, which further lowers the price on the majority of crude purchased at the company's refineries.
"While the refining environment was challenging in the third quarter, our refining segment did increase throughput levels compared to the prior year period. In addition our logistics segment performed well and we continued to unlock value with the first drop down to Delek Logistics in July. The retail segment also showed solid year-over-year improvement during the quarter," said Uzi Yemin, Chairman, President and Chief Executive Officer of Delek US.
Yemin noted that the company's refineries are well positioned to benefit from pipeline access to Midland-sourced crude, which accounts for approximately 87,000 b/d out of the company's 140,000 b/d of crude capacity.
"In addition, we have experienced an improvement in wholesale margins in our refining system," Yemin said. "Finally, our balance sheet remains strong and provides flexibility to continue investing in our businesses and growing through acquisitions, while continuing to return value to our shareholders."
Total throughput rates at the Tyler refinery in Texas were 63,880 b/d in third quarter 2013, versus 60,589 b/d in the prior-year period. Crude throughput of 60,585 b/d during third quarter 2013 was similar to 60,092 b/d in the prior- year period. Total volumes sold increased to 66,493 b/d in third quarter 2013, compared to 62,467 b/d in third quarter 2012.
Direct operating expense at Tyler was $26.6 million, or $4.35 per barrel sold, in third quarter 2013, versus $25.3 million, or $4.40 per barrel sold, in third quarter 2012. On a year-over-year basis, the increase in operating expense was primarily due to variable costs associated with higher production, higher natural gas prices and maintenance-related activities.
Tyler's refining margin was $8.56 per barrel sold in third quarter 2013, compared to $22.01 per barrel sold for the same quarter last year. The decrease was primarily due to a lower Gulf Coast 5-3-2 crack spread, a backwardated crude oil futures market and a narrower WTI Midland discount as compared to third quarter 2012.
**El Dorado Refinery**
Total throughput rates at the El Dorado refinery were 75,189 b/d in third quarter 2013 compared to 69,757 b/d in third quarter 2012. Net barrels sold, which exclude buy/sell activity, totaled 79,804 b/d in third quarter 2013. This compares to net barrels sold of 69,491 b/d, excluding buy/sell activity, in third quarter 2012.
The El Dorado refinery operated at 66,920 b/d of crude throughput during the quarter compared to 62,592 b/d of crude throughput in third quarter 2012. During second quarter 2012, a suspension of crude oil deliveries from a non- affiliated supplier's pipeline caused reduced throughput rates beginning May 1, 2012. The pipeline resumed operation in March 2013.
The refinery processed approximately 2,000 b/d of intermediate products from the Tyler refinery and purchased approximately 8,300 b/d of crude supplied by rail during third quarter 2013, including approximately 4,200 b/d of heavy Canadian barrels. As the economics of crude supplied by rail became less attractive due to changing crude oil differentials, supply flexibility at El Dorado and increased access to Midland crude allowed the refinery to reduce rail-supplied volumes in favor of more economically advantageous sources. As the discount between Canadian crude prices and WTI Cushing widened during October, economics improved for rail-supplied crude to El Dorado.
Direct operating expense at the El Dorado refinery was $29.6 million, or $4.04 per net barrel sold, compared to $25.5 million, or $3.98 per net barrel sold, during third quarter 2012. On a year-over-year basis, the increase in operating expense was primarily due to variable costs associated with higher production, increased natural gas prices and maintenance-related activities.
El Dorado refining margin was $5.36 per net barrel sold in third quarter 2013 compared to $17.20 per net barrel sold during third quarter 2012. The decrease was mainly due to the same factors discussed for the Tyler refinery and lower margins for asphalt. In addition, RINs reduced the margin at El Dorado during July and August as netbacks for gasoline declined due to market pressures associated with RINs in areas served by El Dorado. "This market trend has improved as RIN prices declined through September and into October," Delek reported.
Retail segment contribution margin was $16.6 million in third quarter 2013, compared to $11.0 million in third quarter 2012. Higher fuel margins more than offset lower merchandise margins, increasing results on a year-over-year basis.
Fuel margin increased to 20.5cts/gal in third quarter 2013 compared to 13.9cts/gal in the prior-year period. During third quarter 2013, wholesale fuel prices declined as retail fuel prices were more stable, increasing fuel margins on a year-over-year basis.
Merchandise margin was 27.6% in third quarter 2013, compared to 28.6% in the prior-year period. Operating expenses were $33.2 million in third quarter 2013 compared to $33.9 million in third quarter 2012.
At the conclusion of third quarter 2013, the retail segment operated 362 locations, versus 372 locations at the end of third quarter 2012. Six new large- format stores have opened during the first nine months of 2013, including one during the third quarter. An additional four to six large-format stores are expected to be opened during fourth quarter 2013.
Delek will hold a conference call to discuss its third quarter 2013 results at 9 a.m. Central time Thursday.