Albemarle Corporation, a global manufacturer of refinery catalysts, said that it will increase prices of its fluid catalytic cracking catalysts by 10%, effective March 15, 2016, or as contracts allow.
"Albemarle continues to make significant investments in its FCC business to improve operating flexibility and as part of our commitment to the innovation and technical service programs that help our customers meet the market's challenges and increase their profits," said Dave Clary, vice president of Heavy Oil Upgrading. "Increased prices will help sustain this level of support."
OPIS notes a fluid catalytic cracking unit facilitates a secondary process at a refinery to produce additional gasoline and distillates as well as butane and propane from gasoil.
It is noted that gasoline has swapped places with distillates in 2016, carrying the main load of refiners' margin in 2016 due to a supply glut for distillates. While distillates demand slowed as a result of a global economic slowdown, gasoline demand remains resilient.
U.S. refiners are also reporting stronger earnings since last year, thanks to lower-for-longer crude oil prices and robust exports.
Albemarle, headquartered in Baton Rouge, La., is a specialty chemicals company.
Like most parts of the country, the U.S. East Coast is quickly filling up on its gasoline and distillates inventories on the back of favorable storage economics, high refinery production and resilient imports.
This bearish oil market scenario for traders and sellers is reflected in the rare extended allocation on Colonial Pipeline's Line 3 (Greensboro, N.C., to Linden, N.J.) so far this year and the clobbered Florida rack prices. This should accelerate the rising inventories in the Northeast and add more pressure on the cash price differentials for gasoline and distillates in the New York Harbor market.
Colonial Pipeline has allocated all pumping cycles from 1 to 10 on its Line 3 so far this year, compared with none in 2015. This Line 3 allocation is expected to be extended based on continued heavy nominations as the Mid-Atlantic and Southeast are now facing tank-top inventories.
Line 3 is a 30-inch-diameter pipeline which delivers both gasoline and distillates to Linden. In 2015, there were occasional allocations in the New York Harbor terminal network, but not on Line 3. Besides Line 3, Colonial also delivers both products on a separate south-north pipeline, Line 4, from Greensboro to Linden. That line is not allocated.
Traders said that the arbitrage economics, as reflected in the positive line space value on Colonial Pipeline, are favorable for Gulf Coast delivery to the Northeast.
On Wednesday, prompt line space value for Line 3 dropped to 25pts/gal for Cycle 5-6, compared with a premium of close to 75pts/gal for Cycle 3-7 two weeks ago. Cycle 8-9 commands a stronger line space premium of 50-75pts/gal. The weaker prompt line space premium was attributed to a lack of buying interest following some strong demand two weeks ago.
Line 3 is currently delivering mostly M4 winter conventional regular gasoline, with some RBOB and CBOB, they said.
Also, the pronounced gasoline contango trend is encouraging players to fill up their storage tanks to the brims across the country. On the NYMEX, the March- April RBOB contango spread was at minus 23cts/gal and April-May was at minus 2cts/gal.
The Mid-Atlantic and Southeast markets have seen rack gasoline prices hammered down in January due to high supplies. Colonial Pipeline's Line 1 and 2, which deliver gasoline and distillates from Houston to Greensboro, are consistently allocated.
Florida gasoline rack prices are holding a 6ct/gal premium over Gulf Coast, sharply lower than about 12cts/gal premium in early January. However, some traders note that Florida rack price premium are hard to put a finger on due to the volatile Gulf Coast values.
The Southeast is now enjoying more products deliveries from Gulf Coast via Jones Act ships, which are now more readily available on a spot basis and at lower freight rates than last year. The Jones Act tanker market is experiencing an ongoing trend of crude cargo conversion to oil products due to lower domestic crude transportation demand and a rise in imports. Some traders said that the high inventories and lower prices in Southeast have led to some players with empty Jones Act vessels and no arbitrage opportunities.
With sharply lower Southeast prices and heavy inventory in the South, oil products are being pushed north to the Northeast.
This will lead to a battleground scenario in New York Harbor, which will balance heavy Gulf Coast volumes with competing European imports.
Benefiting from low crude prices, European refiners have also been running their refineries at high rates. The natural market for European gasoline barrels is the U.S. East Coast.
The New York Harbor gasoline cash differential was at about 2cts/gal under the NYMEX screen, compared with a nickel discount in early January. However, the flat outright price was significantly higher in early January.
PADD1 gasoline inventory for the week ended Jan. 29 rose by a whopping 2.8 million bbl to 67.7 million bbl, according to the Energy Information Administration.
On a closer look at the inventory data breakdown, gasoline inventory in PADD1, which covers Northeast, Mid-Atlantic and Southeast, was in line with last year's level. However, the Southeast region was more than 1 million bbl higher year-on- year, and Mid-Atlantic was 2 million bbl lower than a year ago. New England was about 1 million bbl higher.
The Line 3 allocation on the Colonial Pipeline system should help ease the ullage issues in the Southeast, pushing more to the Mid-Atlantic markets and Linden.
PADD1 distillates inventory was down by 1.1 million bbl to 60.2 million bbl. This is compared with 39.283 million bbl a year ago.
Besides Gulf Coast and European imports, the Northeast is also receiving products from regional refineries, including PES, PBF, Phillips 66 and Monroe Energy. These refineries are enjoying relatively healthy margins, thanks to low oil prices and flexibility to import foreign crudes.
Before all the campaign teams leave Iowa after the recently concluded caucuses and start heading to New Hampshire, they may want to seriously consider filling up before exiting Iowa's borders. But if they miss the chance to fill up in Iowa, plenty of surrounding states are in a similar situation with fuel prices sliding.
A look at the most recent OPIS Bottom Line Report sees finished gasoline prices well below $1/gal and in the case of some cities severely discounted. Soft Midwest rack prices are not necessarily a surprise considering the deep discounts being seen in the Group 3 and Chicago prompt markets, but there appears to be some issues "clearing" the product further downstream.
Rack prices throughout states like Minnesota, Illinois, Indiana and Michigan are loaded with offerings in the mid 70cts/gal up through the 80cts/gal area for finished E10 gasoline. Incidentally, those states also see some of the cheapest retail averages, with Missouri leading the charge at $1.491/gal, according to the AAA Fuel Gauge Report, and Iowa among the higher states in the region at $1.714/gal.
As depressed as most Midwest rack prices appear to be for gasoline and to a lesser extent diesel, some of the deepest discounts are found in Kansas. OPIS has confirmed sales at the Kansas City rack at prices below 60cts/gal and at an eye-popping discount of nearly 19cts/gal off of the OPIS low.
With the liberalization of Mexican wholesale and retail markets looming on the horizon, Howard Midstream Energy Partners (HEP) is planning to build a fourth pipeline that delivers oil products from Texas to northern Mexico.
HEP said on Thursday that its subsidiary, Dos Aguilas plans to permit, construct and operate its proposed Dos Aguilas project, an open access system of refined products terminals and pipelines spanning from Corpus Christi, Texas, to northern Mexico.
Currently, there are three cross-border products pipelines in Texas, including two Pemex lines in El Paso and one Plains line at Brownsville. All three pipelines have a total capacity of more than 100,000 b/d.
The Dos Aguilas project will offer transportation of gasoline, ultra-low-sulfur diesel, and jet fuel from the Corpus Christi refinery complex to Laredo, Texas, and on to northern Mexico markets through deliveries to Nuevo Laredo, Tamaulipas and Santa Catarina, Nuevo Leon, near Monterrey.
Pending all government approvals, the project is expected to be in service in the first quarter of 2018.
The Dos Aguilas project includes four new refined liquids terminals with a total combined capacity of 1.15 million bbl and approximately 287 miles of 12-inch pipeline with 72,000 b/d of initial capacity and the capability to expand to up to 90,000 b/d.
OPIS notes this could possibly be the largest U.S.-Mexico products pipeline if it is commissioned as planned. PEMEX's two pipelines in El Paso have a total capacity of 75,000 b/d, and Plains pipeline in Brownsville is rated at about 35,000-40,000 b/d.
In the United States, the HEP project consists of a new terminal located in Robstown, Texas, near Corpus Christi and a 141-mile pipeline between Robstown and a new terminal in Laredo, Texas.
The project also includes 10 miles of pipeline from Laredo to the Rio Grande River and border crossing facilities.
In Mexico, the project will consist of 12 miles of pipeline from the Rio Grande River to a new terminal in Nuevo Laredo and 124 miles of pipeline from Nuevo Laredo to a new terminal in Santa Catarina, near Monterrey. The Dos Aguilas project is expected to cost approximately $500 million. The U.S. and Mexican governmental processes have commenced.
Dos Aguilas intends to launch simultaneous open seasons for the U.S. and Mexican pipelines in the first quarter of this year to solicit indications of interest for transportation services.
Transportation rates originating in Corpus Christi are expected to be approximately $2 to Laredo, $3.25 to the Nuevo Laredo terminal, and $5.75 to Monterrey, exclusive of terminal fees. All rates are approximate and dependent upon commitment and term.
"The Dos Aguilas project is another example of how the 2013 Energy Reform in Mexico is creating a competitive market environment and lowering prices for Mexican consumers. Additionally, by directly connecting refineries in Corpus Christi with multiple markets in northern Mexico, we are essentially opening the door to a whole new customer base for Texas refiners," said Mike Howard, HEP's CEO.
"Howard Energy has always operated under the philosophy that what is good for Mexico is good for South Texas," said Howard.
In 2015, HEP announced plans to construct the Nueva Era Pipeline, a natural gas pipeline directly connecting the company's Webb County Hub in South Texas to Escobedo and Monterrey in Nuevo Leon, Mexico.
The approximately 200-mile Nueva Era Pipeline is expected to be in service in June 2017.
San Antonio-based HEP is an independent midstream energy company, owning and operating natural gas gathering and transportation pipelines, natural gas liquids processing plants, rail facilities, liquid storage terminals, deep-water port facilities and other related midstream assets in Texas and Pennsylvania. The company has corporate offices in San Antonio, Houston and Mexico City.
Last week's oil bounce had more to do with financial cheerleading and less to do with any fundamental shifts in petroleum supply, notes veteran oil economist Phil Verleger. The buying spree most likely came from speculative exuberance, and "only time will tell if the buying has been rational or irrational," he suggested in a weekend note to clients.
In that weekend epistle, Verleger mentioned that a rise in open interest could be the most substantial proof as to the speculative nature of the rally. Today, the CME posted open interest numbers subsequent to the Friday rally and it showed a jump of more than 14,000 contracts for WTI (representing over 14 million bbl of crude) that included an 8,643 contract jump in March positions.
Verleger observes that oil markets saw something similar a year ago, but it proved to be a head fake. And he worries about the fact that very prompt open interest is rising, but purchases of deferred futures some 12 months out is not following the same uptrend.
More importantly, he notes that against the short term futures swings, global inventories are increasing. The risk to producers is that OPEC and non-OPEC countries agree to a modest cut that is insufficient to stop inventory accumulation. A minor cut could simply perpetuate irrational exuberance, lift prices further and promote more inventory cash-and-carry plays that lengthen the cheap crude scenario.
He reminds readers that oil markets do best in a backwardated structure, and suggests the world might have to liquidate 1 billion barrels of global inventory for any return to such a structure and a recovery to, say, $50/bbl. Global producers would have to cut output by up to 3 million b/d by the end of 2016 in order to achieve that goal and no dialogue discussing a cut of such magnitude is taking place.
Verleger continues to believe that Venezuela might represent the event most likely to tighten global oil supply at some point. Last week saw Venezuela request that joint venture partners finance the diluent (usually naphtha) necessary to dilute the heavy Orinoco crude. That act of desperation comes as the International Monetary Fund documents Venezuelan inflation at 700%. With such problems, this South American OPEC member may ultimately not be able to supply some 1 million to 1.5 million b/d of crude to the global market that needs a 3 million b/d cut.
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