US White Oil Market Confronts Supply Bottlenecks Amid Improving Demand Conditions

In the latter half of July 2024, the US White Oil market experienced a slight price uptick of 0.4%, a trend influenced by significant disruptions in production and low inventory levels caused by Hurricane Beryl. During the third week of the month, prices for White Oil rose by 0.3%, despite a 0.4% decline in Crude Oil prices. This increase in the prices of White Oil occurred in the context of reduced refinery utilization rates, which fell from 95.4% for the week ending July 5 to 93.7% for the week ending July 12, and further down to 91.6% by the week ending July 19. The lower refinery runs were a direct result of operational challenges stemming from the hurricane, which prompted a moderate production of White Oil.

The hurricane's impact was moderate across the chemical industry as most of the USGC Texas refinery system escaped relatively unscathed, except for some, like Marathon's 631,000 b/d Galveston Bay refiner which lost power and was expected to be down for at least a week. In Texas, ongoing efforts to restore power were crucial, as approximately 260,000 customers in East Texas were still without electricity a week after Hurricane Beryl struck near Matagorda. Utilities were working to restore power to 98% of these customers by late July 17. The storm, while weakening, continued to cause damage as it moved northeast. In Illinois, severe thunderstorms spawned tornadoes, including an EF-2 tornado that struck near ExxonMobil’s Joliet refinery. This tornado severely damaged regional transmission lines, leading to a power outage at the Joliet plant on July 15.

The outage at the Joliet refinery having a capacity of 251,800 barrels/day had a notable impact on regional refined product prices including White Oil, particularly in Chicago. The refinery's disruption affected major Midwest market players, including BP, Marathon, and Phillips 66, all of which faced difficulties in meeting their supply contracts. As a result, refiners had to turn to the Explorer Pipeline, which transports crude from Port Arthur, Texas, to Hammond, Illinois. However, the surge in demand from refiners exceeded the pipeline’s capacity, leading to a freeze on allocations for four cycles through early August.

Despite the overall market conditions, White Oil prices saw a modest increase. This uptick in the prices of White Oil occurred in the face of declining Crude Oil prices, which fell by approximately 2.5% during the second week of July as fears of refinery damage receded. The rise in White Oil prices is anticipated to continue, driven by improving demand conditions likely due to seasonal factors that could spur increased procurement activities. This anticipated increase in White Oil prices reflects the market’s response to both the supply disruptions and the expected rise in demand.