September 4, 2014
Tesoro Warns of Significant California Retail Gasoline Price Hike in January

Tesoro expects California consumers will pay a sharp retail gasoline price increase of $0.10-$0.15/gallon in January 2015 after the new state carbon dioxide tax kicks in, according to Barclays Capital.

Barclays details some key points, including the carbon dioxide tax impact, from a recent dinner meeting with Tesoro.

Tesoro's retail gasoline price hike projection is based on current trading prices of carbon dioxide in the futures market.

The refiner's price increase warning follows a similar forecast by a newly formed coalition of business owners and employees, consumers and advocates, which launched the Fed Up at the Pump campaign earlier this year to educate and inform California motorists about a state-agency mandated gas and diesel price hike that will have a negative impact on the economy and hardworking families.

Californians are already paying the highest average gasoline prices and the highest gasoline sales tax in the country, and average pump prices in the Golden State are expected to rise further by 12-15cts/gal next year due to the higher cost of carbon taxes, the coalition said.

Starting Jan. 1, 2015, Californians will pay an estimated 15 cents or more per gallon of gas as a result of a "hidden tax" that was created by the Brown administration without consumer input or legislative review.

Also, the campaign is hoping to bring sufficient public pressure on local politicians and the California Air Resource Board to look at changes to make the Cap-and-Trade program more transparent and less complicated, he said.

Jay McKeeman, a spokesman for California Independent Oil Marketers Association,
told OPIS that the state carbon tax will not be repealed.

Meanwhile, Tesoro remains optimistic that the Washington governor's office will grant the approval for its Port of Vancouver Rail Terminal project and the first crude-by-rail delivery in the second half of 2015 despite recent delays.

Tesoro also highlighted the potential for incremental Bakken crude intake in its oil refining system.

Tesoro believes its West Coast logistics system can take up to 20,000 b/d of Bakken to its Kenai refinery, 50,000 b/d Bakken to its Martinez refinery, and 120,000 b/d to its Carson refinery.

Tesoro expects its Carson refinery to continue to run a fair amount of Alaskan North Slope crude in order to produce the needle coke.

Tesoro has currently committed 60,000 b/d of the initial 120,000 b/d capacity at the proposed Port of Vancouver terminal. This capacity could potentially be expanded to 280,000 b/d.

Meanwhile, Tesoro is also optimistic about the prospect of its West Coast xylene petroleum feedstock project, and a final investment decision will made by end- 2014.

The project could start up in late 2017 if it goes ahead.

According to the current plan, Tesoro will gather intermediate feedstock, primarily reformate, from its West Coast refining system (Anacortes and Martinez via ship) for xylene extraction at Anacortes.  

The preliminary investment estimate is approximately $400 million, which will recover up to 15,000 b/d of mixed xylenes and another 15,000 b/d of naphtha by-product.

The mixed xylenes will primarily be exported to Asia.

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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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