Recent Market News

Global Diesel Supplies Seen Tightening in Q4: Energy Aspects

July 19, 2017

Global diesel supplies may tighten amid robust demand growth in the second half of the year and protracted refinery maintenance programs during the third quarter, Energy Aspects said in its latest Middle Distillate Outlook for July.

Demand growth for the fuel is forecast at 660,000 b/d in the third quarter and 630,000 b/d in Q4 this year, the consultancy said.

Diesel demand strength also comes as refineries in the Atlantic basin have been running at near-record levels, said Energy Aspects. Preliminary European demand for diesel in May indicate a strong rebound in distillate demand, according to the International Energy Agency. ULSD demand was 4.9% higher year on year and heating oil demand rose by 11%. Diesel demand in Germany during May gained by 220,000 b/d year on year, with ULSD accounting for 120,000 b/d of the increase.

"The global refining system's ability to easily meet incremental demand for ULSD has been severely tested," Energy Aspects said in the report. "If autumn turnarounds come in heavier than currently expected, the market will quickly start to look to winter demand and the potential for supplies to be tighter in
Q4 2017 than we might have expected just a few short weeks ago."

European absorption of record-high output is mirrored across the Atlantic in the U.S. PADD3 region, where strong Latin American buying has kept refinery runs above 9 million b/d since late April, preventing any significant overspill of product into Europe, said Energy Aspects. Ongoing refinery outages in Mexico and Venezuela in particular suggest Latin American demand will continue to mop up U.S. Gulf diesel export cargoes.

In addition, a "crunch" in the supply and production of ULSD as India's state- run refiners dealt with the new 50-ppm sulfur limit in diesel has siphoned off cargoes that would have otherwise come to Europe, according to the consultancy.

"Indian buyers have stepped back from the market, but for the Atlantic basin, the damage has been done," said Energy Aspects.

"East of Suez refiners typically supply at least 20% of European ULSD imports, but these volumes will now not come as usual."

While Asian diesel demand growth was flat year on year during the first quarter of 2017, it is expected to have subsequently grown by around 400,000 b/d in Q2, according to the consultancy. A recovery in Chinese demand after six quarters of contraction will then further whet the region's appetite for the fuel, lifting Asian diesel demand growth forecasts to 500,000 b/d in Q3, Energy Aspects said in its Middle Distillates Outlook.


Analysis: GEW Suit Against Colonial PL Raises Questions on Legality, Ethics

July 5, 2017

A key question has emerged from the George E. Warren lawsuit against Colonial Pipeline for profiting from alleged misappropriation of oil products as a result of butane injection.

Colonial Pipeline has been blending butane into gasoline at Baton Rouge, La., in its pipeline system since late 2014, so why is GEW suing Colonial Pipeline for a new similar butane blending operation planned for Powder Springs, Ga.?

The main difference between Baton Rouge and Powder Springs butane blending operations is the difference in business models, which cover buying and selling barrels shipped on Colonial Pipeline for butane blending, some industry sources told OPIS on Monday.

At Baton Rouge, Colonial Pipeline worked with Noble Americas as an intermediary -- trader and blender for the gasoline barrels at that location in Louisiana, sources said. Noble buys and sells batches of gasoline from and to owners of barrels shipped on Colonial Pipeline. In theory, Noble buys the gasoline batches from the owner or shipper, blends butane into the gasoline, and resells the gasoline back to the original owner. Some of the blending profits should be passed on to the original owners when Noble sells the batches back, they said.

At Powder Springs, Colonial and Magellan Midstream Partners plan to inject butane into the Line 1, which delivers 1.37 million b/d of gasoline from Houston to Greensboro, N.C., without any intermediary, sources said. In theory, both companies, with inside knowledge of the fuel specifications on the Colonial Pipeline, plan to inject butane into the gasoline supplies on the pipeline without buying and selling any batches from or to the owners of the barrels, they said.

Some gasoline shippers could be unhappy that Colonial and Magellan would be keeping the butane blending profits at Powder Springs to themselves.

Since OPIS first reported this lawsuit last Thursday, traders and logistics players have been discussing the ethical and legal implications of Colonial Pipeline's butane blending operations.

OPIS notes that this lawsuit could have wide ramifications across the entire U.S. oil products pipeline logistics market as this lucrative butane injection in gasoline has been commonly practiced by many major pipeline operators for the past several years. The lawsuit may also lead to other lawsuits from other shippers.

OPIS reported in 2014 that the startup of Baton Rouge butane injection in gasoline operations on Colonial Pipeline was expected to have an impact on Southeast terminals operators' ability to capture the lucrative blending economics along the 5,500-mile pipeline system. The butane injection startup could potentially affect hundreds of terminals along the Colonial Pipeline. Some of these terminals are owned by TransMontaigne, Magellan and Sunoco Logistics.

Besides the legal and ethical questions, some sources highlighted the significance of Colonial Pipeline's extensive butane blending into gasoline operations compared with other regional systems across the country.

While other systems including Magellan, Enterprise and Buckeye are engaged in similar butane in gasoline blending operations, the impact of Colonial Pipeline's operations outsized the rest by leaps and bounds.

Colonial Pipeline's Line 1 has a capacity of 1.37 million b/d, offering a huge opportunity for heavy butane volume blending and equally significant potential profit margin.

Other regional systems such as TEPPCO and Magellan could have a gasoline delivery capacity of about 20,000-50,000 b/d, which are considered relatively small when compared with Colonial Pipeline, sources said.

Also, the new business plan for Powder Springs may have ruffled some feathers in the gasoline shipping sector because it may be the first time a company is injecting butane directly into a pipeline on a large scale.

Sources said that the common industry practice was to blend or inject butane into gasoline at the terminals before loading onto trucks rather than into the pipeline. A pipeline injection offers large-scale blending opportunity rather than comparatively smaller and less efficient blending operations at terminals.

Last Thursday, OPIS reported that GEW, a major U.S. fuel distributor and blender, sued Colonial Pipeline in the U.S. District Court for the District of New Jersey for profiting from alleged misappropriation of oil products as a result of butane injection, according to court documents obtained by OPIS.

"As a result of Colonial's intentional dilution of the product in its pipeline, the product that GEW will receive at the end of the pipeline will no longer be sufficiently above the minimum required specification to enable GEW to blend it for its own operations and sale, as it does now and has done in the past," GEW said in its lawsuit.

"Thus, by wrongly misappropriating shippers' product for its own use. Colonial will in effect be stealing from GEW (and other shippers) the benefit that GEW (and other shippers) have historically been generating for themselves by blending their above-specification product," GEW said.

GEW said in the lawsuit that by Colonial's own admission, Colonial does not own the products it transports in its pipeline on behalf of GEW and other shippers. Rather, Colonial only provides transportation services. The products that Colonial transports remain the property of the shippers. As a common carrier, Colonial is simply the "bailee" of the products it transports and has no right to use or appropriate the products for its own benefit.

OPIS notes that the lucrative butane injection into gasoline business is not an entirely new business optimization opportunity.

Morgan Stanley had done the same at the TransMontaigne terminal at Collins, Miss., which is connected to Plantation and Colonial Pipelines. Also, Enterprise Products is injecting butane into gasoline in its TEPPCO products pipeline system. Magellan and Buckeye highlighted strong profits from butane injection business segments in their respective 2013 earnings reports.

The opportunity to blend butane is supported by refiners blending gasoline beyond the required RVP specifications as a precaution. This allows blenders to inject butane to blend gasoline to the maximum RVP allowed.

Blenders will take ownership of the extra gasoline volume resulting from the butane injection in the pipelines, and they would be required to buy Renewable Identification Numbers (RINs) for the blended gasoline. The butane injection profits could more than cover the RINs purchase.

To capitalize on butane injection, blenders would find out the exact RVP specifications of the gasoline barrels they pull from the pipelines via analyzing samples.

Blenders take the gasoline barrels offline, inject it with butane and put the maximum allowed RVP gasoline back into the pipelines for delivery to the various destinations.

"If the winter gasoline RVP spec is 13.5, a refiner may blend just up to 13.3 or 13.4 RVP to be sure. A blender could inject cheap butane to push the RVP to the maximum of 13.5," a blender told OPIS in 2014.

"This has become a year-round business. The profits in winter may be less than summer, but it is still very attractive," he said. The limitation for butane injectors is the availability of pipeline capacity to accommodate the extra butane.

Colonial and GEW spokespeople have declined to comment as the lawsuit is ongoing.


George E. Warren Sues Colonial Pipeline on Butane Injection in Gasoline

June 29, 2017

George E. Warren (GEW), a major U.S. fuel distributor and blender, is suing Colonial Pipeline in the U.S. District Court for the District of New Jersey for profiting from alleged misappropriation of oil products as a result of butane injection, according to court documents obtained by OPIS.

"As a result of Colonial's intentional dilution of the product in its pipeline, the product that GEW will receive at the end of the pipeline will no longer be sufficiently above the minimum required specification to enable GEW to blend it for its own operations and sale, as it does now and has done in the past," GEW said in its lawsuit.

"Thus, by wrongly misappropriating shippers' product for its own use. Colonial will in effect be stealing from GEW (and other shippers) the benefit that GEW (and other shippers) have historically been generating for themselves by blending their above-specification product," GEW said.

OPIS notes that this lawsuit could have wide ramifications across the entire U.S. oil products pipeline logistics market as this lucrative butane injection in gasoline has been commonly practiced by many major pipeline operators for the past several years. The lawsuit may also lead to other lawsuits from other shippers.

Colonial Pipeline began its butane injection business a few years ago. OPIS reported in November 2014 that the butane injection business for U.S. gasoline blending finally began on Colonial Pipeline at Baton Rouge, La., after a few years of planning and storage tank construction. Noble Americas emerged as a surprise player in the butane blending operations at Baton Rouge, and the supplier of the blending material was Tulsa-based Murphy Energy.

OPIS reported then that the startup of butane injection in gasoline operations on Colonial Pipeline was expected to have an impact on Southeast terminals operators' ability to capture the lucrative blending economics along the 5,500- mile pipeline system. The butane injection startup could potentially affect hundreds of terminals along the Colonial Pipeline. Some of these terminals are owned by TransMontaigne, Magellan and Sunoco Logistics.

GEW said in the lawsuit that by Colonial's own admission, Colonial does not own the products it transports in its pipeline on behalf of GEW and other shippers. Rather, Colonial only provides transportation services. The products that Colonial transports remain the property of the shippers. As a common carrier, Colonial is simply the "bailee" of the products it transports and has no right to use or appropriate the products for its own benefit.

In the lawsuit, GEW is targeting a new butane injection setup on Colonial Pipeline in Georgia.

Colonial told GEW that it, through a joint venture, is building a blending facility in Georgia to inject butane (a lower-grade product that does not meet the specifications of gasoline) into shippers' gasoline as the gasoline passes through the pipeline (in-line blending). The blending facility, a joint venture with Magellan Midstream Partners called Powder Springs Logistics, will dilute the shippers' gasoline, which thereby degrades it, in order to create additional product for Colonial and/or its partners, which will then be sold for their profit, according to GEW.

"Put differently, without authorization from GEW, Colonial intends to appropriate GEW's gasoline for Colonial's own profit (and/or its partners), in pursuit of a new commercial non-carrier related business venture, to the detriment of GEW, which will receive degraded, less valuable product and none of the excess product created with GEW's product," the lawsuit said.

GEW is thus doubly harmed as GEW receives product that is substantially degraded from what it injected into the pipeline, and GEW is denied the excess product created by Colonial and/or its partners using GEW's product or the profits they earn from selling, directly or indirectly, that excess product, it added.

GEW said that the butane injection operation is a violation of Colonial's obligations under the Carmack Amendment to the Interstate Commerce Act, or in the alternative, is a conversion under common law.

GEW seeks damages as well as an injunction to permanently enjoin Colonial's wrongful conduct, GEW said.

OPIS notes that the lucrative butane injection into gasoline business is not an entirely new business optimization opportunity.

In the past, Morgan Stanley has done the same at the TransMontaigne terminal at Collins, Miss., which is connected to Plantation and Colonial Pipelines. Also, Enterprise Products is injecting butane into gasoline in its TEPPCO products pipeline system. Magellan and Buckeye highlighted strong profits from butane injection business segments in their respective 2013 earnings reports.

The opportunity to blend butane is supported by refiners blending gasoline beyond the required RVP specifications as a precaution. This allows blenders to inject butane to blend gasoline to the maximum RVP allowed.

Blenders will take ownership of the extra gasoline volume resulting from the butane injection in the pipelines, and they would be required to buy Renewable Identification Numbers (RINs) for the blended gasoline. The butane injection profits could more than cover the RINs purchase.

To capitalize on butane injection, blenders would find out the exact RVP specifications of the gasoline barrels they pull from the pipelines via analyzing samples.

Blenders take the gasoline barrels offline, inject it with butane and put the maximum allowed RVP gasoline back into the pipelines for delivery to the various destinations.

"If the winter gasoline RVP spec is 13.5, a refiner may blend just up to 13.3 or 13.4 RVP to be sure. A blender could inject cheap butane to push the RVP to the maximum of 13.5," a blender told OPIS in 2014.

"This has become a year-round business. The profits in winter may be less than summer, but it is still very attractive," he said.

The limitation for butane injectors is the availability of pipeline capacity to accommodate the extra butane.

It is noted that Colonial Pipeline's Line 1, which delivers gasoline from Houston to the Mid-Atlantic, is not allocated for the first time since 2011, reflecting the oversupply situation in the Southeast and high refinery utilization in the Northeast.

Both Colonial and GEW spokespeople declined to comment as the lawsuit remains ongoing.


Colonial Pipeline's Non-Allocation Signals Changing Refining, Market Dynamics


June 22, 2017

The first non-allocation for Colonial Pipeline's Line 1 reflects the signs of the times amid a changing landscape for refiners and marketers in the east of the Rockies.

Colonial Pipeline said early on Thursday that its nominations have fallen below its capacity. As such, Colonial will not be calling allocation on Cycle 37, Line 1. Nominations will be monitored closely to ensure the nominations do not rise above our capacity prior to shipping. Line 1 ships gasoline from Houston to the Mid-Atlantic.

Industry sources said that Colonial Pipeline, which could deliver a maximum of more 1 million b/d of gasoline from the Gulf Coast to the Mid-Atlantic and Northeast, has seen consistent nomination allocation on its pipelines for both gasoline and diesel, possibly as far back as 2011.

A Colonial Pipeline spokeswoman said that Line 1 capacity has been allocated without pause since mid-year 2011 (Cycle 42 in 2011).

Sources said that Line 2, a distillates pipeline running parallel with Line 1, remains fully allocated. However, as with Line 1, Line 2 sees ups and downs in shipping volumes due to seasonal demand.

The writing was already on the wall for the diminished demand to ship Gulf Coast products to the North.

The Gulf Coast market saw an extended decline in gasoline line space values on the Colonial Pipeline, with line space value ranging from a penny discount to a few pennies. This negative value for line space reflects the closed arbitrage window for delivering products up north. This also means that some shippers were willing to pay a few pennies per gallon for someone else to ship products due to their ship-or-pay contracts.

OPIS notes that the east of the Rockies products and refining market is continuing to evolve.

The Northeast refiners are now enjoying healthy refining margins, thanks to relatively low crude prices and price-advantaged crude imports. Also, the Southeast rack products price netbacks to the Gulf Coast values are challenged. The Southeast market is taking advantage of a soft Jones Act tanker market, with more waterborne deliveries from the Gulf Coast seen in the past year.

"Even the new shippers do not want to ship products," a trader said.

Colonial Pipeline has enjoyed maximum allocations for consecutive years, and this created an aftermarket for line space for products shipping. Line space could be sold at a premium, especially during a supply issue in the Mid- Atlantic and Northeast.

The line space transactions allow longtime shippers to not only cut their losses during a close arbitrage window, they also allow these shippers to hold on to their allocations so that they could capitalize on a seasonal peak demand period.

It was not uncommon for gasoline shippers to eat some losses in the winter, but they would see guaranteed profits from shipping summer gasoline.

However, it has not been that way for an extended period of time since last year after crude prices hit the bottom.

In the Northeast, refiners are now facing stiff competition from the Midwest, which is competing aggressively for the western Pennsylvania products market share. As Midwest pushes more products to Pittsburgh, more products are backed out to the Northeast and Mid-Atlantic.

This chain reaction in the Northeast is now having a knock-on effect on supplies delivered to the Northeast from the Gulf Coast. However, it is noted that this impact on the Gulf Coast may be limited due to a robust export flow to the Caribbean and South America.


Colonial Pipeline's Non-Allocation Signals Changing Refining, Market Dynamics


June 22, 2017

The first non-allocation for Colonial Pipeline's Line 1 reflects the signs of the times amid a changing landscape for refiners and marketers in the east of the Rockies.

Colonial Pipeline said early on Thursday that its nominations have fallen below its capacity. As such, Colonial will not be calling allocation on Cycle 37, Line 1. Nominations will be monitored closely to ensure the nominations do not rise above our capacity prior to shipping. Line 1 ships gasoline from Houston to the Mid-Atlantic.

Industry sources said that Colonial Pipeline, which could deliver a maximum of more 1 million b/d of gasoline from the Gulf Coast to the Mid-Atlantic and Northeast, has seen consistent nomination allocation on its pipelines for both gasoline and diesel, possibly as far back as 2011.

A Colonial Pipeline spokeswoman said that Line 1 capacity has been allocated without pause since mid-year 2011 (Cycle 42 in 2011).

Sources said that Line 2, a distillates pipeline running parallel with Line 1, remains fully allocated. However, as with Line 1, Line 2 sees ups and downs in shipping volumes due to seasonal demand.

The writing was already on the wall for the diminished demand to ship Gulf Coast products to the North.

The Gulf Coast market saw an extended decline in gasoline line space values on the Colonial Pipeline, with line space value ranging from a penny discount to a few pennies. This negative value for line space reflects the closed arbitrage window for delivering products up north. This also means that some shippers were willing to pay a few pennies per gallon for someone else to ship products due to their ship-or-pay contracts.

OPIS notes that the east of the Rockies products and refining market is continuing to evolve.

The Northeast refiners are now enjoying healthy refining margins, thanks to relatively low crude prices and price-advantaged crude imports. Also, the Southeast rack products price netbacks to the Gulf Coast values are challenged. The Southeast market is taking advantage of a soft Jones Act tanker market, with more waterborne deliveries from the Gulf Coast seen in the past year.

"Even the new shippers do not want to ship products," a trader said.

Colonial Pipeline has enjoyed maximum allocations for consecutive years, and this created an aftermarket for line space for products shipping. Line space could be sold at a premium, especially during a supply issue in the Mid- Atlantic and Northeast.

The line space transactions allow longtime shippers to not only cut their losses during a close arbitrage window, they also allow these shippers to hold on to their allocations so that they could capitalize on a seasonal peak demand period.

It was not uncommon for gasoline shippers to eat some losses in the winter, but they would see guaranteed profits from shipping summer gasoline.

However, it has not been that way for an extended period of time since last year after crude prices hit the bottom.

In the Northeast, refiners are now facing stiff competition from the Midwest, which is competing aggressively for the western Pennsylvania products market share. As Midwest pushes more products to Pittsburgh, more products are backed out to the Northeast and Mid-Atlantic.

This chain reaction in the Northeast is now having a knock-on effect on supplies delivered to the Northeast from the Gulf Coast. However, it is noted that this impact on the Gulf Coast may be limited due to a robust export flow to the Caribbean and South America.


Fuel Retailers in Las Vegas See Wild Rack-to-Retail Diesel Margin Moves


June 14, 2017

Fuel retailers in Las Vegas have been seeing wild rack-to-retail diesel margin moves in the past few months due to a combination of volatile rack prices and relatively flat retail values, industry sources told OPIS on Wednesday.

The Las Vegas rack prices are influenced by Salt Lake City and Southern California values, reflecting the supply sources.

Despite the wild rack price moves, retailers are still enjoying relatively healthy margins.

This week, the lowest Las Vegas unbranded rack diesel price was pegged at about $1.65/gal, compared with $1.76/gal in early June, $1.57/gal in mid-May and $1.75 /gal in mid-April.

Some players noted that the rack price range was significantly wider in the past few months than the retail price moves.

The street retail diesel prices in Vegas have been mostly range-bound at around 10-15cts/gal, hovering around the $2.50/gal mark in the past few months, sources said. Even with the latest rise in rack prices, some retailers are still enjoying a retail fuel margin of more than 30cts/gal, they said.

It is unclear why Vegas street retail prices have not been moving more closely in line with the rack prices as seen in other U.S. racks market. It is common for retailers and rack suppliers to adjust price increases quickly, but price drops could be more gradual.

Sources said that this retail margin phenomenon is seen only in the Las Vegas diesel market, and not gasoline.

Meanwhile, Southwest rack diesel prices have seen huge ups and downs in the past few months.

The refinery production cut back in Utah due to a shutdown of crude pipeline, which propped up prices in April, but prices fell significantly in May due to stronger unbranded market competition or possibly inventory management.

Rack prices have climbed again recently due to an ongoing turnaround at Phillips 66's 63,400-b/d Billings, Mont., refinery. The maintenance work is expected to last about two months, in May and June.

Sources said that diesel barrels are being drawn to the north of Vegas and Salt Lake City into Idaho and Wyoming.

Salt Lake City diesel unbranded low rack prices were at $2.06/gal, compared with $1.55/gal in mid-May and $1.91/gal in mid-April.


Dakota Access Pipeline Finally Begins Commercial Operations


June 1, 2017

Energy Transfer Partners (ETP) said on Thursday that the Dakota Access Pipeline and the Energy Transfer Crude Oil Pipeline (ETCO), collectively the "Bakken Pipeline," are in commercial service under the committed transportation service agreements through their respective pipeline systems.

The June 1 startup is in line with the latest guidance offered by Phillips 66 in early May. OPIS notes that the DAPL was originally expected to begin first flow in late first quarter or early second quarter. The DAPL, which is seen as a game changer in the Midcontinent refining market, is expected to flood the region with Bakken crude when it begins operation. This could have an impact on domestic crude prices from summer onward.

The Bakken Pipeline is a 1,872-mile, mostly 30-inch diameter pipeline system that transports domestically produced crude oil from the Bakken/Three Forks productions areas in North Dakota to a storage and terminalling hub outside Patoka, Ill., and/or down to additional terminals in Nederland, Texas.

The Bakken Pipeline is a joint venture between ETP with a 38.25% interest, MarEn Bakken Company LLC (MarEn) with a 36.75% interest, and Phillips 66 with a 25% interest. MarEn is an entity owned by MPLX LP and Enbridge Energy Partners.

Dakota Access and ETCO, developed at a combined cost of approximately $4.78 billion, have commitments including shipper flexibility and walk-up for approximately 520,000 b/d. This is up from 470,000 b/d due to the successful supplemental open season held earlier this year that committed an additional 50,000 b/d.

The combined system is expandable to a capacity of approximately 570,000 b/d. The pipeline will transport light, sweet crude oil from North Dakota to major refining markets in a more direct, cost-effective, safer and more environmentally responsible manner than other modes of transportation, including rail or truck, according to ETP.

The $3.8 billion Dakota Access consists of approximately 1,172 miles of 30-inch diameter pipeline traversing North Dakota, South Dakota, Iowa and Illinois.

Crude oil transported on Dakota Access originates at six terminal locations in the North Dakota counties of Mountrail, Williams and McKenzie. The pipeline delivers the crude oil to a hub outside of Patoka, Ill., where it can be delivered to the ETCO pipeline for delivery to the Gulf Coast, or can be transported via other pipelines to refining markets throughout the Midwest.

ETCO consists of more than 700 miles of mostly 30-inch converted natural gas pipeline from Patoka, Ill., to Nederland, Texas, where the crude oil can be refined or further transported to additional refining markets.


Gas Demand Safe Through Mid-Term, but Major Disruption Looms Post-2025:Wolfe


May 23, 2017

While increasingly stringent fuel efficiency standards are expected to chip away at U.S. gasoline demand over the mid-term, a convergence of upcoming technologies over the next decade threaten to upend the global fuels industry in the long term, according to analysts at Wolfe Research.

The research house released the first part of its "Journey to the End of the Oil Age" series last week, and the first installment highlights a generally positive outlook for the oil industry over the next five to seven years.

"The fact is, two of the three phases we analyze in this note -- near-term & medium-term are not at all alarming for oil -- modest -1.0% to -1.5% decline for [about] 7 years. There is no collapse until post-2025, and then debatably," says the research note.

The analysts point out that medium-term demand will be reduced not by increasing adoption of electric vehicles (EV), although that will play a role later on, but rather by further tightening of U.S. corporate average fuel economy (CAFE) standards and the gradual overhaul of the national vehicular fleet.

"We think we will see a modest uptick in EV adoption over the coming few years, though battery prices will remain too high for strict EV-ICE economic parity, at least for private vehicles," said the research note. "But we are generally agnostic about the medium-term EV impact -- our feeling is that CAFE standards will govern, and OEMs will use a combination of EV sales and ICE improvements to try to hit the mark."

Longer term, however, the convergence of EV with autonomous technology and a more digitally connected driving experience will allow for a "driver-less digital passenger ecosystem" that is more likely to align with the spending habits and personal preferences of younger generations.

The analysts also view an emerging manufacturer business model that capitalizes on data gathering and the digital passenger ecosystem as a boon for EVs.

"Two years ago, published estimates ranged from a 30% increase in annual revenue to a doubling of revenue from the digitally-connected car," says the research note. "More recently we have seen estimates as high as 10x the revenue from a digitally-connected car (from both the digital ecosystem and data gathering) over the life of the vehicle versus an unconnected ICE. So it is understandable that the battle for control of that passenger ecosystem and data will be fierce among the various players -- OEMs, software driven technology companies, system manufacturers, fleet operators, vehicle retailers, content providers, etc."

The research house views these digitally connected autonomous electric vehicles (DAEV) as increasingly likely to experience an adoption curve more similar to disruptive consumer tech, such as the iPhone or digital cameras, than to more traditional automotive adoption curves. The analysts' base case scenario sees EV making up as much as 20% of the U.S. light-duty fleet by 2035, resulting in potentially a 30% drop in U.S. gasoline demand from 2017 levels.

The research note adds that its rapid adoption scenario, where EVs make up as much as 37% of the nation's light-duty fleet by 2035, remains unlikely, but that its potential is "meaningful and rising."


All U.S. Regional Refining Markets Enjoy Higher Margins: Barclays


May 8, 2017

The U.S. saw an increase in oil refining margins across all regional markets last week, reversing an overall drop in all regions two weeks ago, according to a weekly margin summary report issued by Barclays Capital on Monday.

U.S. oil refining margins increased on average by $1.40/bbl last week.

The second quarter 2017 quarter-to-date (2Q17 QTD) U.S. margins are $1.90/bbl higher than the first quarter 2017 (1Q17), and $1.10/bbl higher than the second quarter 2016 (2Q16).

The Southwest and Los Angeles showed the largest increases. Southwest was up $2.30 to $21.20/bbl, and L.A. rose by $2.20 to $12.40/bbl.

The Midcontinent was up by $1.50 to $14.30/bbl, and Rocky Mountains increased by $1.20 to $16.40/bbl.

The Midwest was up by $1.50 to $15.90/bbl, and the Northeast edged up by $0.30 to $6/bbl. The Pacific Northwest gained $1.30 to $15.30/bbl.

Gulf Coast LLS 6-3-2-1 stood at $7.60/bbl, up $0.50 from the prior week.

The U.S. Gulf Coast jet crack was down $0.70 to $7.70/bbl, and the U.S. Gulf Coast regular gasoline margin was up $1.0 to $12.20/bbl.

U.S. Gulf Coast alkylate margins over regular Gulf Coast unleaded are averaging $8.90/bbl in 1Q17 QTD compared to 1Q17 of $10.10/bbl and 2Q16 of $9.50/bbl, while U.S. Gulf Coast reformate margins are averaging $16.80/bbl in 2Q17 QTD compared to 1Q17 of $19/bbl and 2Q16 of $16.70/bbl.

For crude oil price spreads last week, Brent/WTI Cushing increased $0.50 to $1.50/bbl, while LLS/WTI Cushing increased $0.30 to $2.10/bbl.

LLS/WTI Cushing increased $0.30 to $2.10/bbl, while WTI Cushing/WTS (West Texas Sour) increased $0.20 to $1.20/bbl.

Brent/LLS (Louisiana Light Sweet) increased $0.20 to negative $0.60/bbl, while LLS/Mars (Gulf Coast Medium Sour) was flat at $3.20/bbl. Lastly, LLS/Maya (Mexico Heavy Sour) decreased $2.30 to $5.50/bbl.

Based on the average calendar month price for WTI Cushing and the average trade month differential for Bakken, LLS, Canadian Mixed Sweet, Syncrude, WCS and WTI Midland, Barclays estimates the implied April 2017 trade month prices at $50.20/bbl, $52.80/bbl, $48.90/bbl, $52.70/bbl, $37.40/bbl and $50.10/bbl, respectively.

Internationally, margins were mixed. Northwest Europe increased $0.30 to $3.40/bbl, Japan decreased $0.40 to $5.80/bbl, and Singapore decreased $0.70 to $5.80/bbl.

U.S. integrated marketing margins were flat week-on-week on average. Rocky Mountains showed the largest increase (up $0.90/bbl), while West Coast excluding California showed the largest decrease (down $1.10/bbl).

Gasoline pump prices decreased $0.04/gal compared to last week's national average price.


Barclays Revises Bullish 2017 U.S. Mogas Outlook on Persistently High Stocks


May 2, 2017

Barclays Capital has revised its U.S. gasoline market project, pushing back its expectation of normal inventory to the end of this year instead of summer.

Also, the bank said it no longer expects U.S. gasoline margin in 2017 to be higher than 2016.

In the past few months, the bank had originally maintained an outlook of the U.S. gasoline market to digest the oversupply and inventory to return to normal levels by summer.

"In light of the faster-than-expected ramp up in the U.S. refinery utilization rate and the gasoline inventory build-up over the last two weeks, we now no longer believe that U.S. gasoline inventories will fully return to normal levels by summer," Barclays said.

"Instead, we think it will exit the year at close to normal inventory levels. For the rest of the year, we expect gasoline inventories will be close to the comparable 2016 level (which would reflect about 15-20 million bbl above the 5- year average before improving 4Q)," it said.

In light of the surprisingly weak demand so far in the year, Barclays estimates full-year demand will be down 0.3% year on year, the first down year since 2012. As a result, the bank no longer forecasts gasoline margin to be higher in 2017 compared to last year for the next eight months. 

In April, OPIS reported that the U.S. summer gasoline market was off to a slow start, based on the current prices, demand and supply fundamentals so far. It was noted that while the current gasoline market appears bearish, it was relatively more favorable compared with the same time period a year ago when the market was suppressed by an oversupply.

The current U.S. gasoline market reflects the prevailing supply overwhelming demand. The bearish market sentiment, at least for now, is backed up by a surprising increase in the weekly gasoline stocks in mid-April when stocks should start falling based on the historical trend. However, the slow start may not dictate the tone for the rest of the summer season as peak demand later in July-August could clean up the "oversupply."

Barclays said that while its gasoline projection fell back to earth, the bank expects to see higher year-on-year distillates margin.

Distillate inventories, a significant problem at the beginning of the year, have fallen 20 million bbl versus the five-year average seasonal draw of only an 8- million-bbl decline over the same period, to currently sit around 17% above the seasonal norm versus the previous high of 26% above.

"We think distillate inventories will exit the year close to its normal average and stocks will continue to trend significantly below last year's level. As a result, we think the distillate crack will be much higher than last year,"
Barclays said.

"Given our expectations for (about) flat gasoline margins and better distillate margins versus 2016, we expect the composite crack and profit levels to exceed last year, albeit not as strong as our previous expectation," it added.


 

venue

Renaissance Nashville Hotel 611 Commerce Street
Nashville, TN, 37203
Main Phone: 615-255-8400

OPIS

Oil Price Information Service (OPIS) believes there should be complete price transparency across the oil supply chain so that all stakeholders can buy and sell petroleum products confidently. We provide that transparency through educational courses, software tools, real-time news and pricing services, and market-specific benchmark pricing reports. Being a reliable information source with world-class customer service is important to us, as it helps fulfill our mission to enable customers to make smarter, more informed decisions. Navigating oil price volatility is tough – OPIS strives to make it a little easier. OPIS is an IHS Markit company. Learn more at www.opisnet.com