Winter Weather and Crude Resilience

A scary start to the week may prove uneventful as headlines point to the resilience of crude production across the globe. Key meetings this week will answer questions regarding crude, inflation and production supplies, and winter weather is another concern for the marketplace in the coming days.

Drone strikes were reported in Iran over the weekend, targeting military facilities. No significant disruptions to crude production have been reported; however, there was an oil refinery fire and an earthquake in the area. Reports have not confirmed whether the oil impacts were related to the air strikes or not. Iran’s production facilities are located along the opposite coast of the country, and due to sanctions, Iran is not a significant crude exporter. Any disruptions to their exports have the potential to be offset by OPEC supplies.

Trading this week will center around meetings scheduled this Wednesday. US Federal Reserve officials will meet to introduce new interest rate hikes, which are expected to slow increases to 0.25%. OPEC members are also scheduled to meet with their allies on Wednesday to discuss production rates.

According to a study done by OPIS, 2022 could have been a better year for retail oil brands. When gas prices soared to all-time highs last year, two out of three major oil brands lost market share. Generally, branded gasoline will sell higher than the market by a few cents. However, higher prices led to more price-conscious consumers, which reduced retailer prices. Last year, branded stations charged 2.6cts/gal over the market, but they lost share to unbranded stations by 1.4%, according to OPIS MarketSharePro. Fourteen of the more than twenty branded refiners saw their market share decline. Here is a breakdown of the pricing structure:

• 12 brands sold gasoline over the market – some creeping to 13 cts/gal over
• 5 brands sold at market prices
• 4 sold between 1.5cts to 15cts below the market

Last year, retailers with the best prices won consumers’ business in the sensitive market. Wholesale clubs such as Costco, Walmart and Sam’s Club, and BJ’s had a combined market share of 9.24%.

Speaking of refineries, Exxon is adding capacity at their Beaumont facility, marking the first major US refining capacity upgrade in some time. This project – first introduced nearly a decade ago – will include a 250,000 bpd crude distillation unit. Operations are set to begin on February 4 and would then make the Beaumont facility the second-largest refinery in the US behind the Motiva. Although planned a decade ago, the timing is fortuitous – President Biden last year called for penalties if refiners didn’t produce more fuels soon.

This news also comes as Texas braces for potential winter weather this week. The National Weather Service has predicted severe conditions for much of the state in the days ahead. Beginning Monday afternoon, wintery precipitation is expected to start, followed by freezing rain into Tuesday morning. Icy roads could cause hazardous driving conditions and prevent travel, as well as halt supply during that time. As always, we will continue to monitor the inclement weather and update you accordingly.