OUR OBSERVATION
Readers, I hope this newsletter finds you well.
Since our last Newsletter mid-July, we have not seen any key US postings changes up or down by any of the major base oil producers suggesting they are still analyzing market conditions while grappling with the disconnect between prices on the street vs postings.
GII “Market” price for 220 & 600 dropped between 8 & 9 CPG. We know there is still tightness on the 100 & 600 however this is being outpaced by lower demand of the two grades. 220 still seems to be long to balanced depending upon what producer you speak with. Inclusive of this a key base oil refiner will be entering turnarounds for the remainder of this year and beginning of 1st quarter 2025. Production of 600 Is projected to be flush after the turnarounds are finished. We have seen Re-Refined gal’s creep into the markets where tightness of virgin GII was projected so much so a key Re-Refiner has sold most of its surplus of 100. Asian GII Arb barrels have seemed to slow due to the rising costs of logistics and the lower premiums for the US markets. Most Asian barrels are being diverted to Japan, India and other Asian Nations.
GIII had a unique month with one of the key Index reporting groups, which conveyed a 25 CPG drop in the “Market” price for 4cst material (8/6/2024 -0.20$; 8/20/2024 -0.05$). This is all due to oversupply and low demand and this will most likely continue as more refiners prioritize GIII production over GII. We also have the Middle East & South Korean producers contributing to the oversupply prioritizing the US over Europe again due to the lack of Demand and Price support across the pond.
Hurricane season at least for now has not had an impact however we still have the remainder of the season and the hurricane inventory buildup most likely will start spilling back into the markets mid to late 4th quarter. This will likely keep prices stable or put more pressure on a downward trend.
We also have some interesting things going on with the Canadian railway which seems to have been a bigger issue the last five years. A strike was imposed last week only for it to be undone by the government on Monday 8/26. However, the Canadian government does not believe this is over and until the Unions and the railroad come to an actual agreement there will most likely be slowdowns for the continuous future.
From the Crude platform Wall Street lately has seemed less aggressive on trying to grab every data point for a cost increase. It seems the lack of demand is the driving factor of the downward trend as of late. There was a small reaction of about 2% (Uptick) due to the Feds latest meeting and the mentioning of September being the long-awaited month for a reduction in interest rates.
From the buyer’s perspective we are seeing a conservative approach to inventory buildup as we enter the end of the driving season and the beginning of winter. Most key blenders do not view 4th-Quarter as being strong but are relieved to see some normalcy in that the winter months are always slower. This is helping them at least project out what their inventory needs will be based on normal market trends. Most blenders this year have either been consistent or slightly down, which most consider this a major win in the ever challenging and complex markets.
As for us, we are working closely with all our customers helping them navigate the waters ahead. 2024 has proven to be dynamic on its own terms. As always here and everywhere something is happening that impacts our world and supply chain.
We do deeply appreciate the opportunity to work with you and your team.
RECENT HEADLINES
U.S. REFINERIES
Chevron refinery agrees to pay $550 million settlement to City of Richmond
RICHMOND, Calif. (KGO) — At a special meeting Wednesday, the Richmond City Council voted unanimously to approve a $550 million settlement agreement with Chevron.
The company has been the largest employer and source of tax revenue in the city for years, but has received scrutiny for the pollution it causes.
“I don’t know that there’s an amount of money that’s enough money. Because we’re talking about generations of harm, of death, of sickness, of pollution,” said Megan Zapanta, of the Asian Pacific Environmental Network.
As a part of the settlement, Richmond has agreed to pull a measure that was set to appear on the November ballot. That measure would have asked voters to approve a refinery tax on Chevron.
Chevron earnings slide, Hess merger arbitration drags on
Aug 2 (Reuters) – Chevron Corp (CVX.N), opens new tab on Friday posted sharply weaker second-quarter earnings and the oil major’s CEO discounted the chance to close a $53 billion acquisition of Hess Corp (HES.N), opens new tab before mid-2025, sending shares down 3%.
Shares were off 9% since Wednesday following company statements saying a Hess deal closing could well be pushed back by another year, if not blocked entirely.
Chevron is counting on the Hess acquisition to establish a foothold in Guyana, home to the largest oil discovery in nearly two decades. It also hopes the deal will mitigate risks associated with the company’s performance-challenged oil projects in Australia and Kazakhstan, where operational issues again hit production, pushing maintenance work into the third quarter.
Will Buffett Step in to Keep Occidental Afloat?
Shares of Occidental Petroleum have dropped below $56, raising questions about whether Warren Buffett’s Berkshire Hathaway will step in as it has in the past.
Berkshire Hathaway, Occidental’s largest shareholder with nearly a 30% stake, has previously purchased millions of shares whenever Occidental’s price dipped below $60, a pattern that analysts have dubbed “the Berkshire put.” But this time, the absence of such purchases is raising eyebrows.
For the past month, Occidental has traded under $60, the longest stretch since January, when a similar dip prompted Berkshire to buy 4.3 million shares. Despite this, Berkshire has remained on the sidelines, leading some to speculate that Buffett may be satisfied with his current holdings. With regulatory approval to acquire up to 50% of Occidental, the door is open for future purchases, but the current pause could suggest a potential shift in strategy.
Why U.S. Refiners Are Worried About Canada’s New Oil Policy
Gasoline prices in the United States have recently dipped, with diesel prices falling to their lowest in 900 days. While this offers temporary relief for consumers, a looming change in Canada’s oil policy could disrupt the supply chain, particularly for U.S. refineries dependent on heavy crude oil imports.
NON U.S. REFINERIES
GFL has no plans to go private, plans auction of environmental services business
GFL Environmental expects to run an auction for its environmental services business sometime after Labor Day, CEO and founder Patrick Dovigi said on the company’s earnings call Thursday. The announcement marks a narrowing of paths forward for the company as rumors of a sale have emerged in recent weeks.
Dovigi shut down speculation that GFL would entertain a deal for the whole company, citing conversations with GFL’s board to reach this decision. He said he was motivated in part by GFL’s current stock price, which he believes is trading below the company’s actual value due to its growth plans.
BP Buys Stake in Chinese Sustainable Fuel Firm
BP has acquired an interest in a Chinese company that develops sustainable aviation fuel—an alternative to jet fuel seen as a tool for lowering the emissions footprint of the air transport industry.
The stake represents 15% of the SAF unit of Zhejiang Jiaao Enprotech Stock Co. and cost BP around $50 million, Bloomberg reported, citing a statement by BP’s Chinese unit.
The Chinese company is in the process of building a sustainable aviation fuel factory that will have an annual capacity of half a million tons. Construction should be completed early next year.
European refiners’ golden era draws to end as demands sags
LONDON, July 25 (Reuters) – European oil refiners TotalEnergies (TTEF.PA), opens new tab and Neste (NESTE.HE), opens new tab warned on Thursday of further weakness in profit margins amid sagging demand, signalling an end to a brief era of stellar profits that followed Russia’s invasion of Ukraine.
TotalEnergies, the largest European refiner, saw a 34% quarterly drop in operating income of its refining and chemicals business due to lower profit margins from processing crude oil into fuels such as diesel, gasoline and jet fuel.
Rail workers ordered back on the job as Teamsters vow to appeal labour board decision
Freight trains must start rolling again first thing Monday morning, the federal labour board ruled Saturday as it ordered thousands of rail employees back to work to end a bitter contract dispute that shut down the country’s two major railways.
The decision from the Canada Industrial Relations Board imposes binding arbitration on all involved parties following an unprecedented dual work stoppage at Canadian National Railway and Canadian Pacific Kansas City that halted freight shipments and snarled commutes across the country.
THE CRUDE SIDE
U.S. crude oil rises above $74 per barrel but posts weekly loss on slowing China demand
U.S. crude oil futures rose more than 2% on Friday as the Federal Reserve indicated interest rate cuts are coming, but prices fell for the week as slowing demand in China weighs on the market.
Fed Chairman Jerome Powell said the “time has come for policy to adjust” as inflation has declined significantly. Lower interest rates typically stimulate economic growth, which boosts oil demand.
But oil prices are still down for the week, with the U.S. benchmark falling 2.4% and global benchmark Brent edging lower by 0.83%.
Oil Refiners in US Slow Down, Stoking Global Crude Glut Worries
Some of the top US oil refiners are throttling back operations at their facilities this quarter, adding to concerns that a global glut of crude is forming.
Marathon Petroleum Corp. — owner of the largest US refinery — plans to operate its 13 plants at an average of 90% of capacity this quarter, the lowest for the period since 2020. Similarly, PBF Energy Inc. announced it’s preparing to process the least crude in three years, Phillips 66 will run its refineries near a two-year low.
India surpasses China to become Russia’s top oil buyer in July
NEW DELHI, Aug 22 (Reuters) – India overtook China as the world’s biggest importer of Russian oil in July as Chinese refiners bought less because of lower profit margins from producing fuels, a comparison of import data showed.
Russian crude made up a record 44% of India’s overall imports last month, rising to a record 2.07 million barrels per day (bpd), 4.2% higher than in June and 12% more than a year ago, data on Indian shipments from trade and industry sources showed.
SUGGESTED READING
Fossil Future: Why Global Human Flourishing Requires More Oil, Coal, and Natural Gas–Not Less Hardcover – May 24,2022 by Alex Epstein
The New York Times bestselling author of The Moral Case for Fossil Fuels draws on the latest data and new insights to challenge everything you thought you knew about the future of energy.
For over a decade, philosopher and energy expert Alex Epstein has predicted that any negative impacts of fossil fuel use on our climate will be outweighed by the unique benefits of fossil fuels to human flourishing–including their unrivaled ability to provide low-cost, reliable energy to billions of people around the world, especially the world’s poorest people. And contrary to what we hear from media “experts” about today’s “renewable revolution” and “climate emergency,” reality has proven Epstein right:
- Fact: Fossil fuels are still the dominant source of energy around the world, and growing fast—while much-hyped renewables are causing skyrocketing electricity prices and increased blackouts.
- Fact: Fossil-fueled development has brought global poverty to an all-time low.
- Fact: While fossil fuels have contributed to the 1 degree of warming in the last 170 years, climate-related deaths are at all-time lows thanks to fossil-fueled development.
What does the future hold? In Fossil Future, Epstein, applying his distinctive “human flourishing framework” to the latest evidence, comes to the shocking conclusion that the benefits of fossil fuels will continue to far outweigh their side effects—including climate impacts—for generations to come. The path to global human flourishing, Epstein argues, is a combination of using more fossil fuels, getting better at “climate mastery,” and establishing “energy freedom” policies that allow nuclear and other truly promising alternatives to reach their full long-term potential.
Today’s pervasive claims of imminent climate catastrophe and imminent renewable energy dominance, Epstein shows, are based on what he calls the “anti-impact framework”—a set of faulty methods, false assumptions, and anti-human values that have caused the media’s designated experts to make wildly wrong predictions about fossil fuels, climate, and renewables for the last fifty years. Deeply researched and wide-ranging, this book will cause you to rethink everything you thought you knew about the future of our energy use, our environment, and our climate.
WE’VE COME A LONG WAY!
The Signal Fluid Solutions team would like to take this time to thank you for your business and thank you for allowing us to be an important part of you supply team.
