AMERICAS OIL: Refinery Closures,Rising Demand Could Send Fuel Stocks to 25yr low
Mar-04 18:24
Refinery Shutdowns, Growing Demand Could Send Fuel Inventories to 25-year Low: oilprice.com
- Irina Slav writes on oilprice.com that “refinery closures combined with growing demand for gasoline, diesel, and jet fuel are about to start squeezing available volumes—and this squeeze is about to become marked next year. “
- This is the argument of the EIA, which warned this would plunge inventories to the lowest levels since 2000.
- Two refineries are set to shut down this year, the EIA said in the latest edition of its monthly Short-Term Energy Outlook. LyondellBasell’s 263,776 b/d Houston refinery has already begun the process of the shutdown. The other is Phillips 66’s 138,700 b/d Los Angeles refinery. This would reduce fuel production capacity in the country by 400,000 b/d.
- “The refining industry globally has been experiencing the effects of a declining supercycle even though demand has continued to grow, and, as confirmed by the EIA, this growth will continue. Even so, the record margins of 2022 and 2023 are gone now. Before the new cycle begins, some belt-tightening is in order.”
- Two refineries in California have already converted to biofuel production plants because biofuel production fetches generous subsidies from the state government: Phillips 66 is closing the L.A. facility by the end of this year, and Chevron and Valero are also considering shutdowns.
- Consequently, “fuel supply will tighten, with diesel and jet fuel especially vulnerable, it seems. The diesel tightness will amount to an estimated 1 mb/d of refining capacity across Europe and the U.S. Another 800,000 b/d in new capacity is set to come online in China, India, and Indonesia, Reuters estimated at the end of 2024, which leaves a gap of about 200,000 b/d. Demand for fuels, meanwhile, has continued to surprise to the upside.”
- In the United States specifically, refining output is estimated to decline by 190,000 b/d this year, the EIA said this week, with a further decline of 180,000 b/d in 2026. “To meet the forecast increase in U.S. consumption of petroleum products with less U.S. refinery capacity, we expect refinery utilization to remain relatively high and for net U.S. exports of petroleum products to decrease to meet domestic fuel demand,” the EIA said in its Short-Term Energy Outlook.
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FED: Powell To Deliver Semi-Annual Testimony In Mid-Feb
Jan-31 21:48
The House Financial Services Committee's website confirms that Fed Chair Powell will deliver his semi-annual Monetary Policy Report on Wednesday Feb 12 at 1000ET.
- The Semi-annual testimony will be closely eyed as Powell's first scheduled appearance since the January FOMC - and the House testimony on the 12th is the same day as the release of January CPI (and the week after nonfarm payrolls and benchmark revisions) so will be of particular interest.
US OUTLOOK/OPINION: Nonfarm Payrolls, Revisions Highlight Next Week In US Macro
Jan-31 21:39
Friday’s nonfarm payrolls for January highlights the US macro week. It's a highly anticipated report that could alter recent trends considering it will include annual benchmark revisions along with seasonal factors and an updated birth-death model.
- The preliminary estimate for the benchmark revision pointed to the level of payrolls being some 818k lower than currently reported for back in March 2024. There’s a broad expectation from what we can gather that the hit seen next week won’t be as large but it could still be significant. We also watch the seasonal revisions closely, as whilst they should have a zero-sum impact over the calendar year, we’ve noted some particularly favorable seasonal factors in recent months that have biased seasonally adjusted jobs growth higher.
- With these considerations in mind, the early days of the Bloomberg consensus points to nonfarm payrolls growth of 150k after a solid three-month average of 170k. Note that the unemployment rate from the separate household survey won’t be affected by these revisions, having already seen its own seasonal factor revisions last month. A population control will complicate month-on-month changes in the levels of employment and unemployment but shouldn’t be significant for the rate, which is seen unchanged at 4.1% having surprised lower with 4.09% in December. The recent high is technically 4.23% in November having first popped to 4.22% back in July.
- Two other special mentions for the week are: 1) rare remarks from FOMC Vice Chair Jefferson speaking on the economic outlook and monetary policy late on Tuesday with both text and Q&A, having last spoke on Oct 9. 2) ISM services on Wednesday after its priced paid series jumped 5.9pts to 64.4 in December for the highest since Feb 2023.
- Away from macro but still material, the coming week brings the US Treasury's quarterly refunding process - our preview is here.
MACRO ANALYSIS: MNI US Macro Weekly: Uncertainty Vindicates Fed’s Patience
Jan-31 21:37
In a largely positive week for economic activity data, including in core durable goods and MNI Chicago PMI, the Q4 GDP accounts stood out by showing a very strong end to 2024 for the consumer.
- As we go to press, though, President Trump has confirmed that tariffs would be imposed on Canada, Mexico, and China beginning this weekend – while also threatening further action against the likes of the European Union and across various import categories.
- The combination of solid growth and policy uncertainty, along with stubborn “supercore” PCE inflation for December, seemingly vindicated the Federal Reserve’s “hawkish hold” at its January meeting.
- A March rate cut is still a possibility but the bar for such an outcome has been set high.
- That gets us to the first key release between now and then: Friday’s nonfarm payrolls for January is the highlight of the US macro week, and could alter recent trends considering it will include annual benchmark revisions along with seasonal factors and an updated birth-death model.
- Other highlights in the upcoming week include ISM Services and the Treasury’s quarterly Refunding announcement (Wednesday), while FOMC Vice Chair Jefferson delivers commentary on the economic outlook and monetary policy Tuesday.
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