US Gulf Coast refined product prices jump as subfreezing weather shuts refineries

New York — Extreme cold weather is wreaking havoc along the western Texas Gulf Coast, as record-high demand for electricity is creating power shortages, shutting down refineries and petrochemical plants, while sending market players scrambling for internet access as power outages rotate throughout the region.

Refined product prices have jumped as Texas Gulf Coast refineries shut down or modify operations at the request of the local utility, Entergy, in an effort to conserve power.

About 2.4 million b/d of refinery capacity is confirmed shut and a total of 4.4 million b/d of operable refinery capacity reported impacted by subfreezing temperatures, spanning from Corpus Christi in the south west to the Louisiana border.

Most of the Houston-area refineries reported some impact, including Shell's jointly-owned Deer Park refinery and petrochemical plant.

"Shell's Deer Park facility has shut down due to unprecedented weather in the region," said company spokesman Curtis Smith in an email.

"As a result, flaring is expected to increase in the near term. There is no threat to the surrounding community and we continue to contribute power to the regional grid by way of our cogeneration facilities," he added.

Shell and Petroleos Mexicanos operate a 318,000 b/d refinery, as well as a 961,000 mt/year ethylene facility at Deer Park.

Price spikes and illiquid markets

US Gulf Coast gasoline prices spiked in early trading Feb. 16 amid thin trading. CBOB on the last day of trading for Colonial Pipeline's 12th cycle was heard to trade at NYMEX March RBOB minus 3.50 cents/gal. That was a jump of 2.90 cents/gal from the previous assessment.

"Things are hectic," one trader said.

Sources descried the market as illiquid, with numerous participants without power or operating on mobile hot spots.

ULSD prices took an even larger bounce than gasoline. On Feb. 16, the first business day of the 13th-prompt shipping cycle on the Colonial Pipeline, the market was heard to have traded early at the NYMEX April ULSD futures contract minus 3.50 cents/gal.

ULSD on the Gulf Coast was last seen stronger on Nov. 30, when Platts assessed the market at prompt-month futures minus 3.35 cents/gal. The same market was assessed at March futures minus 5.40 cents/gal on Feb. 12.

The front-month benchmark NYMEX ULSD and RBOB cracks also gained, with reaching highs of $16.67/b and $14.99/b, respectively – the highest levels seen since April 2020.

Several petrochemical companies have declared force majeure on some products, including LyondellBasell and INEOS Olefins and Polymers.

No end in sight

According to the National Weather Service, a wind chill warning for Southeast Texas is in effect beginning noon Feb. 16 . But another winter storm later in the day is expected to bring freezing, which is expected to last through Feb. 17.

"Record-low temperatures are possible," said the Feb. 16 report, as midday temperatures in Houston hovered around 24 degrees F, up from the 12 degrees F earlier in the day.

Utility provider Entergy said Feb. 16 it was starting to rotate power outages along the eastern portion of its Texas service territory as well, which stretches to the Louisiana border, as directed by their grid operator, the Midcontinent Independent System Operator.

Regional knock-on price effect

Both Midwest and US Atlantic Coast refined product markets were impacted as a result of the USGC refinery outages.

In the Midwest, several trades of X grade, as Magellan ULSD is known, were done at March futures plus 1.75 cents/gal, considerably higher than the March futures plus 10 points/gal assessed on Feb. 12.

Chicago pipeline CBOB on the Buckeye system was offered at March RBOB futures plus 50 cents/gal on Feb. 16, while Wolverine barrels were bid at March RBOB futures minus 6 cents/gal, in line with Feb. 12's assessment of March RBOB minus 5.50 cents/gal.

On the Atlantic Coast, ULSD off the Colonial Pipeline was heard to have jumped over 2 cents on the morning of Feb. 16, with a trade heard at March futures plus 2.75 cents/gal.

It was last seen stronger on Nov. 30 at prompt-month futures plus 3.25 cents/gal. Platts assessed the same market at March futures plus 90 points/gal on Feb. 12.

USAC CBOB prices were also higher midday Feb. 16, talked at a 75 cent/gal to $1/gal premium to March RBOB futures, up from the 25 cent/gal discount assessed on Feb. 12.