I know it's more than aggressive for me to assume my recent change is the final chapter from an employment perspective, however I have left Duncan Oil Company for a position at Mansfield Oil Company. In all my past capacities, where I have landed is, in my regard, the final chapter for things I have left to learn regarding the supply and trading capacities of companies. As you can tell from prior blogs I have done everything from spot day deals, long term branded contracts to some in tank transfers. Actually having the ability to not only sell wholesale (which is a passion of mine) but also learn the shipping process and what goes into it really makes this opportunity one my family and I could not pass up. I will tell you it is incredibly difficult to leave the McDaniel family (owners of Duncan Oil) as individuals who got me in the industry I always feel as though I owe them for directing me to what I have grown to legitimately enjoy to work with. They are great people with huge hearts and I will always consider all of them friends.
Exciting times!
Saturday, May 2, 2015
Sunday, March 1, 2015
Running with the bulls
Here recently there doesn't seem to be any indication of a downshift in the projected refined product cost in the near future. Many of the technical indicators are all showing gains and the USW strike sure isn't helping drive that down any time soon. Last week Baker Hughes Inc. said its US rig count went down by 33 last week to 986. A very strong decline from what many analysts would project even though that number was lower than what was anticipated generating concern for any significant impact on the market. Friday proved that to be different with US contract gaining 3.3% to 49.76 per barrel; over a 1.56 gain. The interesting part about the dwindling rig count and what we are seeing from a physical standpoint is that we are still riding a multiyear high on our output. The US is still producing 9.3mmbd of product showing the translation from rigs being cut should not by synonymous with a sharp rise in prices as we have seen the last couple weeks. With the market being as unstable as we are currently seeing it is generating a state of contango with suppliers storing product hoping to generate larger profits in the future. These types of tactics are what creates backwardation in the market by buyers making sellers pay a premium in the future for storing product they can use today. Another reason to consider for the increase in prices would be the recent weather they have been experiencing in Iraq. With this, the exports of OPEC were cut from their original goal of 30 million barrels in February to 29.92 million which is their lowest output of exporting since June of last year. If we can see an uptick from this side, then we might be able to see a little release in product costs putting the bulls at bay for a while, especially with weather in the Midwest acting as it has. The Midwest has been experiencing a longer than expected winter. I'm actually looking out my bay windows to my back deck and am staring at about 6 inches (and counting) falling right now. Noting that anomaly on March 1st I should also state I can barely see the tips of the corn stalks that were harvested last year, which is the going to be the largest interest point for March diesel (in my opinion). I say this because as of 2013 the Energy Information Administration has listed that diesel used in agricultural related business accounted for 3,026,611,000 per year of the overall 58+ billion gallon consumption. Assuming half of that product is used for planting, we are going to see a significant fall off from recent years of planting use on diesel. I know getting in the fields is all strictly dependent upon time of year based on geographical placement, however this cold snap hasn't just effected the Ohio valley where I'm at - I even saw where Jacksonville, FL received some snow as well. This arctic blast is potentially going to put many farmers back 2 - 3 weeks on their planting plans which could push March contract diesel lower and pop April contract higher. Looking at the weather in my neck of the woods, we're not supposed to see weather over 40 degrees without precipitation until March 10th; it's going to be tough for the ground to dry out as needed within 2 weeks for farmers to get in fields in March and start tilling and cultivating. I'm actually telling my larger volume customers to entertain locking in some April pricing over the next couple weeks (just watch the market) and on the heavy down day to pull the trigger. It will help them budget the per acre costs and limit risk. Some are even entertaining locking in for harvest which I can't say would be a bad idea either....
As far as regional pricing/supply goes, Husky is still installing an isocracker unit at its Lima refinery which is keeping it running below max utilization. The pricing on Platts/Argus continues to be stable and beneficial as of today with the netbacks still hitting close to .20/gallon in specific markets. With the recent 2nd round of winter weather in the last week, logistics are becoming a little challenging by the Miami Valley expecting between 5-7 inches of snow. After speaking with our dispatch group this morning is sounds as though the road crews for Ohio have been doing an exception job with our team continuing to go forward with no issues at all. Our trucks have been running well, while still basing safety as paramount, and our loads have not been impacted by the snow.
Although this does seem to be an exceptionally long winter it is bitter sweet coming from a guy who works for a company who sells heating oil and propane. As a fan of the show Goldrush I have to admit I was pretty excited about the recent tag given to our company in moments like this #coldisgold.
As far as regional pricing/supply goes, Husky is still installing an isocracker unit at its Lima refinery which is keeping it running below max utilization. The pricing on Platts/Argus continues to be stable and beneficial as of today with the netbacks still hitting close to .20/gallon in specific markets. With the recent 2nd round of winter weather in the last week, logistics are becoming a little challenging by the Miami Valley expecting between 5-7 inches of snow. After speaking with our dispatch group this morning is sounds as though the road crews for Ohio have been doing an exception job with our team continuing to go forward with no issues at all. Our trucks have been running well, while still basing safety as paramount, and our loads have not been impacted by the snow.
Although this does seem to be an exceptionally long winter it is bitter sweet coming from a guy who works for a company who sells heating oil and propane. As a fan of the show Goldrush I have to admit I was pretty excited about the recent tag given to our company in moments like this #coldisgold.
Thursday, February 26, 2015
2 years and back at it
Well I've taken more than my fair share of time off from this. In just the short time I have taken off I have gained 30 lbs. lost 20 and have baby number 3 coming in 12 days.....amazing how much can change in such a short period of time. Not only have I had the pleasure of putting my body through a consortium of confusing changes, but I have also had the incredible opportunity to make my way back to where I started my career at age 22 - I'm now back home in Urbana, Ohio working for Duncan Oil Company. I can assure you this is definitely the last stop in, what seemed to be, my short tour of the country because my wife was clear that if I leave home again I'm going to have to do so without her. She loves me - I swear....
In my new capacity I have been introduced to areas of this industry I always assumed were a myth - operations, safety, maintenance, trucking, sales, ect.....what happened to supply? Well, I get to still have some fun with that, and I'll tell you supply in Ohio is almost as frustrating as supply in Chicago except on a whole different level. In Chicago it seemed like the economics from one refinery could adjust all the technical readings and make your projected analysis useless - frustrating to say to say the least. In Ohio it is entirely different, now we have the beauty of a melting pot concept where pricing and retail margins are derived from Gulf Coast, Chicago and New York Harbor economics. A logistical nightmare would be an understatement from where this guy is sitting, however one thing I have noticed is the INCREDIBLE opportunity to warrant additional volume from these net backs we're seeing on our Platts contracts. Obviously I've worked with NYMEX, Argus & Platts contracts in many different capacities, but none as advantageous as I have ever noticed in the part of the country. There are times such as today where our contract pricing is .20/gallon lower than the lowest posted unbranded supplier and as much as .33/gallon lower than some of the regional refiners are posting (this is for ULSD). Being that we are a heating oil and commercial fuels company this is padding our projected margin by MUCH more than what we had budgeted based on the ability to purchase fuel at a lucrative discount. We are able to pass along some of our savings to our customers by keeping our operating costs lower than our competitors and our fuel is basically selling itself! Granted, our company is very focused on customer satisfaction and incredibly service oriented so we can justify a little higher margins anyway, but the additional profit is helping us help our customers which is sowing some very good will with them as well as helping us pick up some additional companies who are used to just purchasing at retail facilities. Supply seems to be pretty good at this point - we have not noticed any significant issues even with the refinery strikes from the USW we seem to be getting optimal volume as needed.
Now - as far as the operations side goes....I was lucky enough to be tagged as the Vice President of Operations for our company about 8 months ago and in that capacity have worked with our ownership team and determined we're moving away from owning our power units and leasing everything. I'm not a gearhead by any means and can barely find my way around a shop, but what I do understand is basic economics and as we continue to see the technology advance in these new power units we see the cost to maintain these assets rise with it. For instance - we have a crane truck and blew a motor and tranny in it in December and the total bill to have everything rebuilt hit the tune of over $25,000.00. I'm not game to continue to spend a down payment on a house to fix a truck that is 6 years old. Our new leasing program lowers our liability and fixes our yearly cost per unit to where we can closely budget our cost per unit to where we can really get a strangle hold on our overhead and take advantage of external sales opportunities by generating a required rate of return. The one issue we have with leasing vehicles is obviously in the case one breaks down we will not have anything immediately available to take its place, so we have decided to keep a couple units on stand by as "spares", but they are not daily drivers; just something to keep our guys running if something comes up out of no where. Tankwagons are a little different story; since you can only lease a cab and chassis we have now come to the determination on how we are going to manage this going forward in terms of a buyout at the end and how to get a scheduled unit to replace the purchased unit. We are planning on making a profit division out of the purchase and resale of the asset and using the money to either purchase a new tank to put on the back or use the profit to roll into a new lease. Either way our research has shown after 5 years the trucks are going to be at the peak selling point and at the downtrend of its life cycle which will keep us from having to maintain the big ticket items such as a motor or transmission.
This is just the tip of the iceberg from where we stand. We have been making some huge adjustments from a sales and marketing perspective as well which I'm sure will be a point of literature in the future, but at this point I just figured it best for me to finally get back to writing down everything I'm thinking because my 9 month pregnant wife has absolutely no interest in anything I have to say at this point....she just wants to be comfortable again and me talking about work is anything but. Like I said....she loves me.
In my new capacity I have been introduced to areas of this industry I always assumed were a myth - operations, safety, maintenance, trucking, sales, ect.....what happened to supply? Well, I get to still have some fun with that, and I'll tell you supply in Ohio is almost as frustrating as supply in Chicago except on a whole different level. In Chicago it seemed like the economics from one refinery could adjust all the technical readings and make your projected analysis useless - frustrating to say to say the least. In Ohio it is entirely different, now we have the beauty of a melting pot concept where pricing and retail margins are derived from Gulf Coast, Chicago and New York Harbor economics. A logistical nightmare would be an understatement from where this guy is sitting, however one thing I have noticed is the INCREDIBLE opportunity to warrant additional volume from these net backs we're seeing on our Platts contracts. Obviously I've worked with NYMEX, Argus & Platts contracts in many different capacities, but none as advantageous as I have ever noticed in the part of the country. There are times such as today where our contract pricing is .20/gallon lower than the lowest posted unbranded supplier and as much as .33/gallon lower than some of the regional refiners are posting (this is for ULSD). Being that we are a heating oil and commercial fuels company this is padding our projected margin by MUCH more than what we had budgeted based on the ability to purchase fuel at a lucrative discount. We are able to pass along some of our savings to our customers by keeping our operating costs lower than our competitors and our fuel is basically selling itself! Granted, our company is very focused on customer satisfaction and incredibly service oriented so we can justify a little higher margins anyway, but the additional profit is helping us help our customers which is sowing some very good will with them as well as helping us pick up some additional companies who are used to just purchasing at retail facilities. Supply seems to be pretty good at this point - we have not noticed any significant issues even with the refinery strikes from the USW we seem to be getting optimal volume as needed.
Now - as far as the operations side goes....I was lucky enough to be tagged as the Vice President of Operations for our company about 8 months ago and in that capacity have worked with our ownership team and determined we're moving away from owning our power units and leasing everything. I'm not a gearhead by any means and can barely find my way around a shop, but what I do understand is basic economics and as we continue to see the technology advance in these new power units we see the cost to maintain these assets rise with it. For instance - we have a crane truck and blew a motor and tranny in it in December and the total bill to have everything rebuilt hit the tune of over $25,000.00. I'm not game to continue to spend a down payment on a house to fix a truck that is 6 years old. Our new leasing program lowers our liability and fixes our yearly cost per unit to where we can closely budget our cost per unit to where we can really get a strangle hold on our overhead and take advantage of external sales opportunities by generating a required rate of return. The one issue we have with leasing vehicles is obviously in the case one breaks down we will not have anything immediately available to take its place, so we have decided to keep a couple units on stand by as "spares", but they are not daily drivers; just something to keep our guys running if something comes up out of no where. Tankwagons are a little different story; since you can only lease a cab and chassis we have now come to the determination on how we are going to manage this going forward in terms of a buyout at the end and how to get a scheduled unit to replace the purchased unit. We are planning on making a profit division out of the purchase and resale of the asset and using the money to either purchase a new tank to put on the back or use the profit to roll into a new lease. Either way our research has shown after 5 years the trucks are going to be at the peak selling point and at the downtrend of its life cycle which will keep us from having to maintain the big ticket items such as a motor or transmission.
This is just the tip of the iceberg from where we stand. We have been making some huge adjustments from a sales and marketing perspective as well which I'm sure will be a point of literature in the future, but at this point I just figured it best for me to finally get back to writing down everything I'm thinking because my 9 month pregnant wife has absolutely no interest in anything I have to say at this point....she just wants to be comfortable again and me talking about work is anything but. Like I said....she loves me.
Tuesday, May 21, 2013
Devastation
The devastation in the state of Oklahoma due to recent tornadoes has been terrible over the last 24 hours. With the ravaging of the storm through the town of Moore it has generated destruction totaling millions of dollars and also stole the lives of some not ready to leave this earth. We keep all effected by the storm in our hearts and minds and wish them health and happiness.
The markets have been seemingly unharmed from the storm as the market continues its slide to try to correct from July barrel trades (for gasoline). Not even 5 days ago there was a .56 differential between June and July trades in Group 3 as there were inventory shortages throughout the mid-con due to both short positions and refinery issues. With the Coffeyville refinery coming back online and HollyFrontier's El Dorado, KS refinery coming back on we are seeing the market start to correct itself. With the time left in the month of May, we should start to see values get back in line with July scenarios.
The markets have been seemingly unharmed from the storm as the market continues its slide to try to correct from July barrel trades (for gasoline). Not even 5 days ago there was a .56 differential between June and July trades in Group 3 as there were inventory shortages throughout the mid-con due to both short positions and refinery issues. With the Coffeyville refinery coming back online and HollyFrontier's El Dorado, KS refinery coming back on we are seeing the market start to correct itself. With the time left in the month of May, we should start to see values get back in line with July scenarios.
Tuesday, May 14, 2013
Group 3/Chicago Unleaded
Well - today has been more than eventfull....
Group 3 basis is up .21 today moving the number to a total of .50 at the current state. Based on these values marketers would be best served managing their gasoline inventories based off Chicago or even Gulf Coast economics (depending upon geographic placement). Today we are seeing differentials close to .20 - .30 per gallon between the different pipelines and are offering arbitrage advantages for marketers. From what is looks like, there is a shortage in PADD 2 and this, coupled with Group 3 refinery outages are making a blast in basis. A source told me he is under the impression there are a number of marketers who tried to take a short position due to the backwardation in the market and wanted to try to offload the product before the cycle shift. This came up to a substantial number of short barrels in the Group and moved basis much higher than in other areas of the country.
If you have the ability to purchase Chicago or Gulf Coast economics, I would suggest looking into those areas to source your supply needs.
Group 3 basis is up .21 today moving the number to a total of .50 at the current state. Based on these values marketers would be best served managing their gasoline inventories based off Chicago or even Gulf Coast economics (depending upon geographic placement). Today we are seeing differentials close to .20 - .30 per gallon between the different pipelines and are offering arbitrage advantages for marketers. From what is looks like, there is a shortage in PADD 2 and this, coupled with Group 3 refinery outages are making a blast in basis. A source told me he is under the impression there are a number of marketers who tried to take a short position due to the backwardation in the market and wanted to try to offload the product before the cycle shift. This came up to a substantial number of short barrels in the Group and moved basis much higher than in other areas of the country.
If you have the ability to purchase Chicago or Gulf Coast economics, I would suggest looking into those areas to source your supply needs.
Thursday, May 9, 2013
Chicago ULSD
Well as I'm sure most of you (in the Chicago market) have noticed ULSD skyrocketing earlier this week putting the price differential off Group 3 close to .25/gallon. Anyone looking for cheap diesel in the Chicago market should look to finding supply out of Bettendorf, IA. HWRT and Growmark have some pretty competitive pricing and they are not gouging based on Chicago basis. With freight averaging between .10 & .12 per gallon, the savings is still substantial. This also proves to be a competitive advantage heading into middle/southern Illinois as well as they are making increased profits based on Chicago ULSD basis jumping so high.
Saturday, May 4, 2013
Back at it
Well it has been a while since my last post. A lot has been going on in the market and I have been taking my time trying to learn all the issues/opportunities as they arise. The biggest thing I'm noticing is the Platts vs. rack benefits. Chicago Platts numbers are incredible compared to what is being offered at the rack level in the Chicago market (at least on diesel). If you are a large distillate user and you have the ability to lock in some contract volumes at a reasonable Platts number, I would jump on it....we're seeing savings close to .01 - .025 below low rack. We have also noticed a huge benefit with biodiesel as well. As you all know I'm a huge proponent of the product and have pushed it as a viable competitive solution for the last couple years and it is back in full force again right now. Not only do you get a tax incentive for an 11% blend (no sales tax) in Chicago, but the savings on the physical product is also substantial. Right now we are seeing a .16/gallon savings on a B20 blend NOT including an additional, probably, .11/gallon savings on not paying sales tax. I don't know about you, but for .27/gallon I'm all over using some FAME.
There have also been some weather related issues as I'm sure you've all heard. With the heavy rainstorm a couple weeks ago, we had the Forest View Terminal under 4 feet of water and it is STILL closed at this point. They expect it to be back up and running next week, but considering the conditions, I'm cautiously optimistic. Another issue which has come up is the possibility of the Enterprise pipeline discontinuing shipments of diesel starting July 1st. There have been people argue this issue and put in to have it stopped, but it still looks as though it is going to be inevitable. Though this does not have a direct effect on me, it will have an effect on many of the jobbers/retailers in the Southern Illinois/Southern Indiana markets. If you are in these markets I would suggest you contact your jobber/supplier and ask what options they are going to be offering for you to stay competitive in the market. For companies with proprietary terminals (like HWRT & Marathon) this non-shipment can increase their margins on distillate substantially as they are now going to be the only games in town offering the product. I'm not saying they would do that, but hey....supply and demand right?
There have also been some weather related issues as I'm sure you've all heard. With the heavy rainstorm a couple weeks ago, we had the Forest View Terminal under 4 feet of water and it is STILL closed at this point. They expect it to be back up and running next week, but considering the conditions, I'm cautiously optimistic. Another issue which has come up is the possibility of the Enterprise pipeline discontinuing shipments of diesel starting July 1st. There have been people argue this issue and put in to have it stopped, but it still looks as though it is going to be inevitable. Though this does not have a direct effect on me, it will have an effect on many of the jobbers/retailers in the Southern Illinois/Southern Indiana markets. If you are in these markets I would suggest you contact your jobber/supplier and ask what options they are going to be offering for you to stay competitive in the market. For companies with proprietary terminals (like HWRT & Marathon) this non-shipment can increase their margins on distillate substantially as they are now going to be the only games in town offering the product. I'm not saying they would do that, but hey....supply and demand right?
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