Peek Diesel?

[Mega]

https://www.zerohedge.com/news/2018-...esnt-look-good

Strange, i mean when i went to school crude oil was pumped into a "Cracker" (fracnional distilation) and you get everything....

[GRG55]

Re: Peek Diesel?

https://www.zerohedge.com/news/2018-...esnt-look-good

Strange, i mean when i went to school crude oil was pumped into a "Cracker" (fracnional distilation) and you get everything....

More doom and gloom from zerocred. I genuinely hope we are getting close to peak doom & gloom...it seems to have become a depressingly massive industry in the aftermath of the financial crisis; everything from imminent financial collapse to massive Yellowstone volcanoes.

Refineries can "tune" their product output to some degree to meet market demand for individual products. They do that through adjustments in the crude oil blends at inlet and changing the cracking and distillation conditions. Some of those demand swings are driven by seasonal factors, such as the large swing in motor gasoline consumption between the summer driving season and mid-winter, as an example.

Diesel is part of the "middle distillates" products, which also includes jet fuel, which is very close to diesel (most diesel light vehicle engines will run on jet fuel just fine). The biggest driver of both diesel and jet fuel consumption and production is economic activity. And right now the USA economy seems to be charging ahead.

Here's a chart of US low sulfur diesel output...up 50% this decade. This has come at the expense of higher sulfur diesel production, which has collapsed due to environmental air quality regulation changes.



And here's a chart of jet fuel production. Despite improvements in commercial jet fuel efficiency (such as the Boeing 787) US jet fuel production has also been on a steady increase this decade.

[dcarrigg]

Re: Peek Diesel?

I bought about 300 gallons of old No 2 two days ago. Called 'em up and they brought it over the next day. This is what everyone in my neighborhood does for heat, and has been for a hundred years. Someone has to soak up the capacity of that giant refinery in New Brunswick. And we down in New England are it.

[bungee]

Re: Peek Diesel?

https://www.zerohedge.com/news/2018-...esnt-look-good

Strange, i mean when i went to school crude oil was pumped into a "Cracker" (fracnional distilation) and you get everything....

There is not just one cracker there is a whole series of them possibly with intermediate processes which will be optimised (temperature, pressure, catalysys etc) to give particular products.

How much fuel oil was burnt in power stations thats has now been replaced by natural gas? The lack of any chart for petrol/gas production seems suspect. I always find zerohedge articles to be alarmist but I guess that is what their readship wants to read.

It seems as equally likely that refinaries are gaming the system to push up the price of diesel or there are more profitable things that can made instead of diesel and if the price of diesel goes up as a result of making something else more profitable then surely that is a win-win for the refinary industry.

I'm sure there were people making the peak diesel claim back in 2009 at 23.7 Mb/d and now we are over 25 Mb/d.

[Mega]

Re: Peek Diesel?

Thanks Guys!
Sage advice & views AS EVER!
Mike

[GRG55]

Re: Peek Diesel?

I bought about 300 gallons of old No 2 two days ago. Called 'em up and they brought it over the next day. This is what everyone in my neighborhood does for heat, and has been for a hundred years. Someone has to soak up the capacity of that giant refinery in New Brunswick. And we down in New England are it.

I need to come out there and figure out how to switch you folks over to LNG. :-)

[dcarrigg]

Re: Peek Diesel?

I need to come out there and figure out how to switch you folks over to LNG. :-)

To be honest, I'd help you! But it's not just Iriving's iron grip on New Brunswick and Maine you've got to contend with. It's the local fuel oil companies. They beat me up on a 2¢/gal surcharge (way less than road diesel still) to include oil customers in state energy efficiency programs. I was surprised by how organized, militant, and effective they are. Much more so than the electric or gas utilities. And everyone knows the propane companies are scams, so there's much more churn and they're much more national. But the fuel oil crowd are small, family-owned, and have deep roots. They've all got cousins and brothers and aunts on the town councils and in the statehouse. Fuel oil's a heating source for only 5% of American homes. But it's 30% in Massachusetts and Rhode Island, 50% in Connecticut, Vermont and New Hampshire, and like 75% in Maine. And it hasn't budged much, even when oil went sky-high and everybody griped. In places, the natural gas distribution lines stop at the town border. And given the weirdness of New England Towns and the whole no counties thing, it makes for a very weird patchwork and very complex politics. Worse still, pipeline capacity into the region is severely strained due to heavy reliance on natural gas for electricity generation and the retirement of old plants that used other fuels. Spectra partnered with Nat'l Grid and Eversource to try to solve that problem and they met the political axe last year. I think it's possible to crack it. But it would take a serious multi-year effort with financing and planning and it would absolutely get messy even if you had the capital and desire to buy out the fuel oil folk and managed to stay off the Irvings' radar long enough to have a head start. Still, I'm confident that residents would switch if they had the choice, especially during the next run-up in oil prices, and for all sorts of reasons, not the least of which is being able to get off propane, which everybody hates. Businesses like restaurants would save a bundle, payback would be same-year I'd imagine.

[GRG55]

Re: Peek Diesel?

To be honest, I'd help you! But it's not just Iriving's iron grip on New Brunswick and Maine you've got to contend with. It's the local fuel oil companies. They beat me up on a 2¢/gal surcharge (way less than road diesel still) to include oil customers in state energy efficiency programs. I was surprised by how organized, militant, and effective they are. Much more so than the electric or gas utilities. And everyone knows the propane companies are scams, so there's much more churn and they're much more national. But the fuel oil crowd are small, family-owned, and have deep roots. They've all got cousins and brothers and aunts on the town councils and in the statehouse. Fuel oil's a heating source for only 5% of American homes. But it's 30% in Massachusetts and Rhode Island, 50% in Connecticut, Vermont and New Hampshire, and like 75% in Maine. And it hasn't budged much, even when oil went sky-high and everybody griped. In places, the natural gas distribution lines stop at the town border. And given the weirdness of New England Towns and the whole no counties thing, it makes for a very weird patchwork and very complex politics. Worse still, pipeline capacity into the region is severely strained due to heavy reliance on natural gas for electricity generation and the retirement of old plants that used other fuels. Spectra partnered with Nat'l Grid and Eversource to try to solve that problem and they met the political axe last year. I think it's possible to crack it. But it would take a serious multi-year effort with financing and planning and it would absolutely get messy even if you had the capital and desire to buy out the fuel oil folk and managed to stay off the Irvings' radar long enough to have a head start. Still, I'm confident that residents would switch if they had the choice, especially during the next run-up in oil prices, and for all sorts of reasons, not the least of which is being able to get off propane, which everybody hates. Businesses like restaurants would save a bundle, payback would be same-year I'd imagine.

Interesting backgrounder DC. Many thanks!
Why do people hate propane? I am curious. We have no difficulty competing with Diesel most places, but propane is much more difficult for us to displace.

[Mega]

Re: Peek Diesel?

Wot happened to Peek Cheap oil ?

[dcarrigg]

Re: Peek Diesel?

Interesting backgrounder DC. Many thanks!
Why do people hate propane? I am curious. We have no difficulty competing with Diesel most places, but propane is much more difficult for us to displace.

Propane is an unregulated fuel up here. But increasingly some places have some laws around it. So ymmv depending on the state.

In general, the mild scam works like this: propane's an unregulated fuel, but, unlike No. 2, they refuse to set or advertise a standard per-unit price. They also tend to force residents and businesses into often multi-year contracts where they have to rent tanks, and refuse to fill privately owned tanks. They talk about how great it is and start your first tank off at say $2.39 per gallon or something. Then once they have you signed into a multi-year contract with a heavy fee for leaving early, they jack the price up to $6 per gallon. If you're a big enough customer and/or you make enough noise, they'll drop your rate back down to say $4/gal. But if not, you pay the sucker's rate. Really big customers they're a bit more hesitant to do this to. For a few, they might even have relatively low prices. But the price is inversely proportional to usage, and at very small scales, not like C&I rates on LNG or electricity.

The serious scam is much worse. Local business folk see the mild scam and think there's an honest buck to be made here by not being that crooked. They slowly gain a reputation and build up a book of business over a couple years, still with the contracts, but maybe only one year, and not with so many fees. Some big national player (that generally operates without a national brand) notices. Makes offers above what the beancounters say the business is worth. Local business sells for the good deal. Outside national company now amends existing contracts to be longer terms and have anywhere from a couple hundred to thousand+-dollar cancelation fees. Then they jack rates up through the roof. They will do this in winter. These guys are straight vultures. They have no intention on being around long. They're just milking this. They hike everyone's price up to $6, $7, or $8+ per gallon and minimize customer service, don't answer the phones, and increase the rate at which they start filling tanks and billing. Maybe knock the payment terms down to something inconvenient like Net 10, remove any ability to pay online to make you pay by mail, and have $50 or $100 fees for being one day late. They basically dare customers to leave. Once you quit, they use the tank as their hostage. Most companies won't move another company's tank for liability and other reasons. And they won't come take the tank away until you pay the cancellation fee and the check clears. Oh, and they might have an additional tank removal fee they snuck in for a few hundred you don't realize until right then. After maybe 1-3 years of this, the company folds and sells the facilities and equipment. Either a new local company that's honest moves in and the cycle begins anew, or one of the national brands buys it and commences the mild scam.

Truth is, after a few years on the merry-go-round, folks either find they can tolerate the mild scam at $4/gal even though they know they're getting ripped off because they only pay $2-something when they fill their smaller grill tanks. Or they get swamp yankee about it and daisy-chain a bunch of smaller tanks together to get lower independent prices and get out of the contracts. Few actually get off it. Partly because housing stock here is old and lots of places don't have 220v service, so even if they're on fuel oil, if they don't have natural gas access, they need propane for water heaters and dryers and stoves and what not. So there's no easy way off.

Anyways, the NY AG started looking into it this year. So I'm not sure if it's a national problem, but I know it's at least that far out.

Like I said, they won't advertise a per unit price, and it varies for delivery amounts, but just to give you a sense of how bad people are getting ripped off, here's the survey the state of Mass does. Keep in mind, the really bad actors will not answer the phone for just about anyone, so I highly doubt they're part of the survey. Can you imagine gasoline or No. 2 ranging locally from $1.88/gal to $4.21/gal with companies on the up-and-up? And these are only the unit prices for deliveries over 100gal. For under 100gal (and lots of smaller older houses have 100 or 120gal tanks), the prices can be substantially higher. If you ever find yourself in a bar or diner in some old nowhere New England town, strike up a conversation about how propane companies gouge you. Odds are you'll hear stories.

[GRG55]

Re: Peek Diesel?

Wot happened to Peek Cheap oil ?

It got cheap.

[thriftyandboringinohio]

Re: Peek Diesel?

Here's my favorite propane story.

Back when we were in our 20's and spent our time drinking beer and running wild, a couple friends rented an old double wide trailer way out in the boondocks.
They were young and irresponsible and poor and the trailer had propane heat.
During a severe cold snap they decided it was time to buy some propane because it was just too cold to cut wood for the stove and they had already burned the picnic table for heat.

When they called the local propane dealer they got an angry earful, richly deserved.
The propane guy told them exactly how it was going to unfold, take it or leave it.
He would drive past their trailer between 8 and 9 in the morning. He would slow down but not stop.
If he saw one of them standing on the road waving cash money in the air he would go up the driveway to deliver.
I still laugh thinking of my friend standing on that gravel road shivering in the bitter cold waiting to wave his cash at the propane truck driver.

[dcarrigg]

Re: Peek Diesel?

It got cheap.

Speaking of which, oil down ~7% today. Cheapest since Jan of 16 bottom. Don't usually play commodities. But starting to look tempting in this environment.

[GRG55]

Re: Peek Diesel?

Speaking of which, oil down ~7% today. Cheapest since Jan of 16 bottom. Don't usually play commodities. But starting to look tempting in this environment.

We still seem to have a deflationary bias to the world economy, including the USA (despite the tax cut and other fiscal stimulus), as the currency exchange value remains comparatively strong.

But commodities are generally a late cycle play. And difficult to argue we are not late in this cycle.

At some point the US Dollar reverses into a secular downtrend. External financing of the debt and deficits will require the currency be thrown under the bus. The external view of investing in the USA has to look like a sufficiently compelling value proposition to keep the money flowing onshore. The ability for foreigners to buy US$ for less is an important part of that. Difficult to discern when that starts. January? A year? Two? More? But when it does commodities will be one hedge to look to imo.

I have been gradually shifting out of US assets into more Europe and a bit more EM. The look pretty cratered up for a value investor like me. Generally looking at the cyclicals. However, in the oils Exxon, BP and RDShell look interesting and don't seem horribly overvalued, given the sort of thing I do in my portfolio.

[touchring]

Re: Peek Diesel?

Generally looking at the cyclicals. However, in the oils Exxon, BP and RDShell look interesting and don't seem horribly overvalued, given the sort of thing I do in my portfolio.

No SU?

I have been gradually shifting out of US assets into more Europe and a bit more EM.

I'll be careful on EM. Thailand and Mexico are good but valuation is high. Russia and Turkey are risky due to politics. India and China have got structural issues with the financial sector and property bubble.

China, in addition, has big problem with demographics. A lot of the Chinese consumption is being propped up by Chinese baby boomers in their 60s. Parents giving money to their single childs to buy cars and housing - this is how Beijing and Shanghai become the most expensive property markets in their world relative to income. But I can foresee that in less than 10 years, Chinese baby boomers will become net sellers of properties as they age because China doesn't have a social safety net for their the elderly.