Nobody takes more grief than ExxonMobil. It's been that way since John D. Rockefeller's day. Exxon's headquarters formerly had been at 1251 Avenue of the Americas in New York, next door to where Platts was located for the first 14 years of my career here. Long after the company had moved the headquarters to Texas, protestors would show up, usually driven by the Exxon Valdez, but not exclusively. The funny thing of course was that while the company still had some offices there, the leaders of Exxon were thousands of miles away, in Irving, Texas. The protestors were mostly venting their rage at ghosts.
So let's give a bit of applause for XOM being one of the few companies not afraid of the future. After weeks of spending cutbacks by seemingly everyone, on all sorts of investment, ExxonMobil said this week that it was going to spend about $1 billion to increase its output of ultra low sulfur diesel by about 142,000 b/d. The work will be done at refineries in Baytown, Texas, Baton Rouge, Louisiana, and Antwerp, Belgium.
The incredible strength of the ULSD market has abated little since spring. For example, doing a simple relationship Friday between ULSD in the Gulf Coast and second month WTI shows that ULSD is 135% of ULSD, still very high by historic standards.
Valero said a few months ago that it was delaying a new hydrocracker project, aimed at boosting the output of diesel and other distillates, at its Port Arthur, Texas refinery, even though diesel crack spreads remain strong. At the time, Valero CEO Bill Klesse said the company was "just watching our cash flow ... there's a lot of uncertainty to access to capital so we're holding onto cash." It's easy to understand Valero's position, but it's also one of the reasons why so many analysts are predicting that prices are laying the ground to be whipsawed higher...someday.
This is one of the reasons why ExxonMobil is so successful. When everyone was scared back in the late 90's, it merged with Mobil, acquiring its reserves at what amounted to bargain-basement prices. And now, with capital squeezed and projects being delayed right and left, it is putting itself in position to make a great deal of money in the future on what will continue to be a tight diesel market, which has held its strength relative to crude even as the overall price has taken a dive.
Some other observations on the week:
--Did anybody notice that while WTI prices for January were plunging Friday to eye-popping numbers below $34/b, almost every other price rose? Second month WTI, No. 2 and RBOB on the NYMEX, ICE Brent...all of them. It doesn't mean much, and February WTI on NYMEX, now that it's the front month, may easily move down to $34 over the next few weeks. But it should be noted that Friday's January WTI plunge, on expiration day, was about the only downward move to be recorded anywhere in the world.
--In its monthly report this week, OPEC said OECD stocks currently stand at 56.3 days of forward cover, about four days more than the average for the past five years. But given the steepness of virtually all forward curves for crude and major products, and given antecdotal reports from individual markets, it's tough to find anybody who really believes that number. Almost everyone believes it is much higher. It's that number that will keep oil depressed for the foreseeable future, unless just about every barrel of OPEC's cuts takes hold. That is going to be a momentuous task.
Leave a comment