FUELSNews 360° - Q2 2019 Market Report by FUELSNews

M A R K E T

N E W S

I N F O R M A T I O N

2nd QUARTER

Table of Contents FUELSNews 360° Quarterly Report Q2 2019 FUELSNews 360°, published four times annually by Mansﬁeld Energy Corp, analyzes and summarizes the prior quarter’s activity in the oil, natural gas and reﬁned products industries. The purpose of this report is to provide industry market data, trends and reporting—both domestically and globally—to provide insight into upcoming challenges facing the energy supply chain.

Executive Summary

Overview

Regional Views continued 22

April through June 2019

Crude Prices

Fuel Price Overview

PADD 4 Rocky Mountain Nate Kovacevich

PADD 5 West Coast Sara Bonario

Canada Nate Kovacevich

Economy & Demand

Recession on the Horizon

Fuel Demand

Alternative Fuels 25

Sara Bonario

26 14

Fundamentals 15

Crude Inventories

US Oil Production

Natural Gas Supply, Demand, Storage Martin Trotter

Low Reﬁnery Activity Boosts Fuel Prices

Renewables

Viewpoints 29

FMCSA Launches Under 21 Military CDL Pilot Program Nikki Booth

Regional Views 18

Jim Kincaid

PADD 1A & B East Coast Dan Luther

PADD 2 Midwest Dan Luther

Spot as a Best Practice Della Richardson

PADD 1C Lower East Coast PADD 3 Gulf Coast Gabe Aucar

Fuel Systems Management

FUELSNews 360˚ National Supply Team Contributors

Q2 2019 Executive Summary Oil prices have been on a roller coaster ride for the past nine months, and the ups and downs of Q2 yielded little insights into where the market will ultimately land. Any upward momentum in prices was accompanied by two steps in the opposite direction, resulting in a wide trading range that has come to characterize markets. The recent WTI crude oil narrative cycle starts with the bull run beginning in 2016 and lasting until October 2018, when prices fell from $75 to $45 in just a handful of weeks. The new year started with a return to higher prices, and prices snapped back to $65 by the end of Q1 2019. But Q2 brought more volatility, and prices sank back towards $50 again, only to rise again at the end of the quarter to nearly $60.

Regional Perspectives At the regional fuel level, Q2 brought some severe supply concerns in several areas. The quarter opened with severe supply shortages in California, and the impacts quickly extended into Arizona. A number of factors were at play, including pipeline issues, summer fuel specification changes and refinery downtime. Sara Bonario explains the shortage on page 23. In the Midwest, pervasive severe flooding disrupted transportation and forced some refinery shutdowns in Oklahoma and Arkansas. Gasoline prices gained 15 cents during this time, though by the end of the quarter prices had cooled. Nate Kovacevich explains how this has impacted consumers on page 21.

Demand concerns have been the preeminent market driver for some time. With the US economy now ofﬁcially in the longest expansionary period in American history, many are waiting for the inevitable slowdown in growth. Trade is at the heart of concerns—many expect the US-China trade war to be the key factor in whether global markets sink into recession in the next two years.

On the East Coast, a massive fire at the Philadelphia Energy Solutions refinery bankrupted the 330 kbpd facility, leaving significant uncertainty about future Northeast supplies. Markets are currently weighing their options, which include importing more European fuels, increasing shipments from the Southeast on the Colonial Pipeline, or even reversing the Laurel Pipeline to allow fuel from Chicago refineries to move east.

Considerably less focus is on the supply side, though that remains the other import factor for markets. US supply has been rising incessantly for years, but in Q2 output seemed to tumble a bit. Whether this represents an upward resistance point—or merely a hiccup on the otherwise solid march higher—is yet to be seen.

Viewpoints

OPEC is doing its best to offset rising US output. As Q2 ended, the organization opted to extend their production cuts for 9 months, lasting until the end of Q1 2020. While cuts will help whittle down excessive global crude inventories, much work remains ahead if OPEC wants to make a path for US crude growth. Looking ahead to the balance of the year, prices have become remarkably difﬁcult to predict. Assuming the economy endures trade war concerns and does not dip into a recession, OPEC’s cuts ought to keep steady pressure on oil prices. In this scenario, a rise of WTI oil prices above $60 seems quite likely. On the other hand, an all-out economic downturn could easily send prices tumbling—at least temporarily—into the $40’s. Time will tell what the future of oil prices will hold.

Installing a fuel tank in your backyard can be a financially prudent move, but the upkeep required to keep the tank running efficiently can be time-consuming. By instituting a simple weekly inspection, you can extend the life of your equipment while maintaining optimal fuel quality. Jim Kincaid lists the key items to inspect on page 30. Many fuel buyers purchase their fuel from a contracted supplier, but sometimes there are perks to maintaining purchasing flexibility. Contract-free spot quotes are one way to develop useful market intelligence while optimizing your fuel prices. On page 32, Della Richardson explains how to determine when spot fuel purchases are right for you. The driver shortage affects everyone in the transportation industry, but the FMCSA is working on a solution that could help bring new talent into the industry. The group is coordinating with the military to allow drivers under the age of 21 to obtain their CDL for interstate commerce if they have experience driving military equipment. The program aims to bring in young talent to the career that has recently seen an aging population. Nikki Booth discusses the new program on page 29. •

OVERVIEW April through June 2019 The second quarter brought yet another jerk in the roller coaster that has deďŹ ned oil markets for the past two years. With a high over $66/bbl and a low near $50/bbl, Q2 continued to display wide price ďŹ&#x201A;uctuations.

Q2 Market Summary

$1.9425 $1.9446

$58.47

26,560

Source: New York Mercantile Exchange (NYMEX)

Overview

Q2 2019 Crude Prices

Source: New York Mercantile Exchange (NYMEX)

April April opened with WTI crude rising above its 200-day moving average for the first time since prices peaked in October. The rapid growth of Q1 seemed to herald continued upward momentum, and hedge funds flocked back to the product. US-China trade seemed to be on the cusp of a resolution, and Venezuela’s oil production was cratering. All signs pointed to higher prices. In early April, even a massive 7 million barrel crude inventory build in the US could not slow the momentum. Adding to supply concerns were threats of instability in Libya, where rebel forces stormed the capital to push out UN troops. With a production capacity of 1 MMbpd and at least 1/3 of that lying close to the action, traders pushed prices up to $64/bbl, a five-month high. As April continued, markets became enthralled with the drama of Iran sanctions. Back in November, Trump granted waivers to several countries allowing continued purchases of Iranian crude, which were set for expiration in early May. But in late April, President Trump made clear that countries needed to wind down their purchases of Iran’s crude. With the goal of taking Iran exports to zero, the Trump administration ended waivers, further tightening the market. With crude surging to $66/bbl and beyond, markets seemed confident that the post-October market was merely a fluke on the path to higher ground. Further confirmation came as reports showed Venezuela importing crude oil for the first time since 2014 after production reached 16-year lows. But economic winds were just beginning to stir. 7

Overview

May

June

Throughout early 2019, the US and China had been engaged in trade dialogues to attempt putting the trade war in the past. Many expected a deal to form, and President Trump and Chinese President Xi seemed on the cusp of scheduling a meeting to ﬁnalize details. But on May 5, Trump tweeted that China had reneged on some of its commitments and tariffs would quickly be increased to 25%.

June brought a new topic into oil headlines – the approaching OPEC meeting, scheduled for early July. Throughout the month, short soundbites drove markets higher or lower, though the general expectation leaned heavily towards a renewed deal. Russia consistently toyed with the market, oscillating between concerns over low prices and, conversely, America’s growing oil market share. Eventually, though, the deal was extended to cover the second half of 2019 and the ﬁrst quarter of 2020.

The renewed trade war would have quickly sent fuel prices tumbling, but Middle East tensions reared their head and stole the markets attention back brieﬂy. A Houthi rebel attack on a Saudi vessel near the Strait of Hormuz evoked an immediate international reaction, leading the Saudis to call three separate emergency summits with various Arab groups to discuss an appropriate response. But even with Middle East tensions heating, the market could not hold onto its high prices for much longer. By late May, economic conditions overwhelmed all other factors, and prices began to fall rapidly. On May 21, the Organization for Economic Cooperation and Development (OECD) revised their 2019 GDP growth forecasts own from 3.5% to 3.2%, sending stock markets and oil prices tumbling. The day following, WTI crude oil prices dropped a staggering $3.50/bbl, crashing below the 200-day moving average. That date would prove a deﬁning point for Q2, when prices ceased their ascent and turned lower. Prices fell from $63 to below $60, and continued tumbling. They broke through $55/bbl just a week later. Economic prospects continued to grow dimmer. US-China trade talks collapsed entirely after America hiked tariffs from 10% to 25%. As it stands at the end of Q2, the US has imposed hefty tariffs on roughly half of all goods imported from China, while China has slapped tariffs on nearly all American imports. Without room to further add tariffs, China began threatening other economic warfare including cutting off sales of rare earth metals to the US, a move which would have severe consequences for America’s electric vehicle and smart phone manufacturers. Adding to the economic concerns, Trump squeezed one more economic torpedo into May, announcing on May 30 that the US would impose an escalating tariff on Mexico until the country stepped up its border enforcement. Fortunately for businesses on both sides of the border, Mexico quickly complied with the demand, averting economic malady. 8

June also revisited geopolitical tensions in the Middle East. A second marine vessel attack, this time on four oil tankers, occurred near the Strait of Hormuz on June 13. As in May, the international community was quick to pin the blame on Iran, though the country denied involvement. Continuing the escalations, Iran shot down a US drone, alleging the plane had encroached on their territory despite US claims that the drone was in international air space. The US came to the brink of launching missile strikes, which were called off at the last moment by President Trump to avoid further escalation of conflict between the two countries. Trump argued missile strikes with nearly 150 casualties was not a proportional response to an attack on an unmanned drone. Still, the close call sent oil rallying out of fear of a broader conflict in the Middle East. As the quarter came to a close, there were still plenty of developments to influence financial markets and oil. At the G20 Summit in Osaka, Japan, US President Trump and Chinese President Xi agreed to resume trade negotiations, reinvigorating hopes for stronger demand this year and next. Additionally, OPEC leaders announced intentions to extend oil production cuts for nine months, extending them until April 2020. OPEC leaders also set ambitious targets to cut global inventories by over 150 million barrels, an effort to return global stocks to 2010-2014 averages. •

Overview

Fuel Price Overview

Quarterly WTI Crude Prices

Overall, crude oil ended Q2 at a higher average price than the previous quarter, though the trajectories were quite different. Q1 saw prices rising rapidly, while Q2 prices moved downward. Q1 may have ended on a high note, but low prices early in the quarter kept average prices compressed. In fact, the second quarter saw prices average at the highest level since Q3 2018, when prices soared to new highs.

Source: New York Mercantile Exchange (NYMEX)

Diesel and gasoline prices saw widely contrasting results from Q1 to Q2. Diesel prices have been relatively ﬂat for the past few quarters, keeping between $1.95 and $2.20 since the beginning of 2018. Diesel ﬁnished Q2 at an average price of $1.98, though within the quarter prices ranged from $1.80 to $2.10. Compared to Q1, the second quarter was up just 4 cents overall.

Quarterly Diesel Prices

Source: New York Mercantile Exchange (NYMEX)

Contrasted with diesel’s stability, gasoline prices have been on a wild ride. Plummeting in Q4 2018 and Q1 2019 to just $1.60 per gallon, summer prices soared to $1.94. Though still more than 15 cents below last year, Q2 marks a 35 cent increase from Q1.

Quarterly Gasoline Prices

Source: New York Mercantile Exchange (NYMEX)

Overview

Rack-to-Retail Spreads

Gasoline Rack-to-Retail Spreads

While fuel prices have trended sharply lower over the past couple months, retail fuel buyers have not enjoyed the full beneﬁts. Rack-to-retail spreads, the difference between the average bulk fuel price and what you’d pay at a truck stop or gas station, increased rapidly in late May and early June as fuel prices collapsed. Back in October 2018, spreads blew out to extremely high levels as fuel prices plummeted. This past quarter prices revisited those highs, with gas station prices roughly 30 cents over bulk fuel prices, while retail diesel cost a whopping 60 cents more than bulk pricing. Typical spreads are closer to 15 cents and 35 cents for gasoline and diesel, respectively.

Source: Energy Information Administration (EIA)

Diesel Rack-to-Retail Spreads

A quick rally in fuel prices at the end of June, attributable to progress on trade and geopolitical tensions, caused rack-to- retail spreads to quickly sink lower, making for a quite volatile quarter. Gasoline spreads plummeted from 35 cents to 12 cents, and diesel spreads fell from 60 cents to 45 cents. •

Source: Energy Information Administration (EIA)

ECONOMY & DEMAND

In the ﬁrst half of 2019 global growth prospects continued to grow weaker. Annual growth for 2019 was downgraded by the World Bank to just 2.6 percent, a sharp drop from previous projections of 2.9 percent.

reduced enthusiasm relative to earlier verbiage around “solid” growth. The Fed responded to headwinds by signaling a more accommodative monetary policy stance, keeping interest rates low to boost ﬁnancial markets (including oil). In fact, the Fed has now changed their posturing to suggest a rate cut is possible either this year or next.

The downgrade reﬂects weaker than expected international trade and investment due in part to the ongoing trade dispute involving the United States and China, among other factors. In Q2, President Trump imposed 25% tariffs on roughly half of all goods coming from China and threatened the other half, creating headwinds for trade between the world’s two largest economies.

Although growth has moderated, economic indicators remain strong. Unemployment continues shrinking within the US, reaching a new 50-year low of 3.6% in Q2. Consumer sentiment, which fell to one of the lowest levels since 2016 earlier this year, has also soared over the last few months. •

US Unemployment Rate

In Europe, economic momentum slowed on weakening consumer and business confidence, while a subdued recovery in investment growth in emerging market and developing economies also dampened global growth prospects. In China, following several quarters of deceleration, we see growth appearing to stabilize somewhat, supported by monetary and fiscal stimulus. However, U.S. trade tensions continue to weigh on the Chinese economy. Growth is projected by the World Bank to decelerate from 6.6 percent in 2018 to 6.2 percent in 2019, reflecting softening manufacturing activity and trade. Growth in the United States was described as just “moderate” by the Federal Reserve in their June comments, suggesting

Source: Bureau of Labor Statistics

Economy & Demand According to World Bank forecasts, U.S. growth is expected to slow to 2.5 percent in 2019 and further decelerate to 1.7 percent in 2020. These projections are unchanged from the previous forecast due to offsetting factors. On the one hand, recent tariff increases and associated retaliatory actions are expected to weigh on activity. On the other, growth is being supported by more accommodative monetary policy than previously assumed and by sustained increases in productivity growth and labor force participation. •

Consumer Sentiment Index

Source: University of Michigan

US GDP Growth

Source: US Bureau for Economic Analysis

Fuel Demand The EIA forecasts global liquid fuels demand to outpace supply for 2019. Global oil demand is expected to grow by 1.2 million b/d in 2019 and will rise in 2020 to 1.4 million b/d. Liquid fuel demand growth in the US is expected to moderate this year and next, well below 2018’s strong growth of 0.5 MMbpd. This year, the EIA expects liquid fuel demand growth to be just 0.2 MMbpd. Of this, demand for hydrogen gas liquids (HGLS), including propane and petrochemical feedstocks, are expected to dominate the growth, while gasoline and diesel fuel demand will remain relatively ﬂat.

Of course, a recession could severely impact both global and US fuel demand. During a recession, freight hauling slows, leading to less barge, jet, and truck demand. Consumers also cut back, decreasing gasoline consumption. With economics driving large swings in trader sentiment, demand data will play a growing role in setting the tone for oil prices. •

This summer, the EIA expects gasoline demand to average 9.54 MMbpd, a moderate 0.3% increase over last year’s summer demand. While fuel consumption will be just mildly higher, highway miles driven will reportedly rise 1.3% this year, with the difference attributable to more fuel efﬁcient vehicles. The agency also forecasts summer diesel consumption to be 4.1 MMbpd, the highest level since 2007.

Source: Energy Information Administration (EIA), Short-Term Energy Outlook, June 2019

Economy & Demand

Recession on the Horizon

It’s become a common trope in the economics sphere: a recession is coming. Why do economists keep predicting a recession in the near future? There have been as many as 47 recessions in US history, 11 of which have occurred over the past 70 years. Typically, economic growth periods last 3-5 years, and the longest expansion period in American history occurred in the 90’s, lasting 10 years. But as of June 30, we are now living in the longest expansion period in US history. In other words, many economists believe the economy is living on borrowed time, making a recession inevitable in the near future. Of course, the latest growth period has been marked by relatively slow growth, averaging just 2.3%. Compare that to the previous record period, with 3.8% GDP growth on average in the 1990s. We may still have a bit of room to run. A survey from the National Association of Business Economics reveals just a 15% chance of a recession before the end of 2019, though economists generally see a 60% chance of recession before the end of 2020. The survey pointed to protectionist trade policies as the most likely culprit for inciting a recession, though a stock market correction or slowing global growth may also be a cause.

Both of those actions naturally tighten the US economy, so the Fed has opted to stop its interest rate hikes and hinted at slowing its Quantitative Tightening approach. There’s no economic law that requires a recession to occur. Indeed, it’s theoretically possible to continue growing through innovation and prudent investment decisions forever. But history suggests a recession will come in the next couple years. Whether the culprit is a slowdown in trade growth or a surprise bankruptcy like the Lehman Brothers collapse in ’08, odds are high a recession is coming. On a positive note, the next recession is not expected to be as severe as the last one. For many younger folks in today’s workforce, the Great Recession is the only downturn experience they may have. But many economists view the ’08 recession as a Black Swan event, a domino-effect of unlikely events causing catastrophic consequences. Most recessions last just a few quarters and see relatively small reductions in growth. What should fuel consumers do to prepare? There are a number of actions possible, though specific plans depend on your buying strategy. Many customers lock in fixed prices during a recession to capitalize on lower commodity prices, while others switch to consigned fueling to free up cash flow. Still others invest ahead of the recession in programs that reduce costs, such as installing bulk tanks or optimizing DEF equipment, in order to cut costs when the recession comes. •

US Historical GDP

The Fed, for its part, has taken a new tone towards a recession. For the past couple years, the group has been undoing its Great Recession response by hiking interest rates and unwinding its massive balance sheet accumulated during Quantitative Easing (this unwinding has been called Quantitative Tightening).

Source: University of Michigan

F U N D A M E N TA L S

Despite the bearish direction of oil prices in Q2, the fundamental picture demonstrates a balanced, or even slightly undersupplied, market. The EIA’s latest projection for Q2 shows a very slight net daily draw around 200 kbpd. Over the course of the quarter, that works out to roughly 18 million barrels difference, a relatively meager change compared to global inventories. Looking ahead to Q3, supply imbalance is expected to steepen as OPEC maintains their production cuts, keeping markets tipped towards undersupply. The curtailment of exports from Venezuela and Iran is also

contributing to the draw. However, the net draws are expected to give way to builds in 2020 as demand weakens and supply remains steady. While consumption has fallen slowly over the past few quarters, demand is expected to pick back up heading into the summer as the US enters its driving season. As the largest consumer in the world, American demand causes a strong uptick in fuel consumption each summer. While Iran, Russia, Venezuela and more may attempt to inﬂuence markets through supply, each year it’s American consumers in the driver’s seat, propping up prices through demand.

World Liquid Fuels Production and Consumption Balance World liquid fuels production and consumption balance millionbarrels barrelsper per day million day 106 106 104 104 102 102 100 100 98 98 96 96 94 94 92 92 90 90 88 88 //// 86 86 00

forecast forecast

worldproduction production world worldconsumption consumption world

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q3 Q4 Q4 Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Q4 Q1 Q1 Q2 Q2 Q3

2014

2015

2016

2017

2018

2019

2020

2 2 implied impliedstock stock build build 1 1 0 0 -1 -1 implied impliedstock stockdraw draw -2 -2 Source: Energy Information Administration (EIA), Short-Term Energy Outlook, June 2019

Fundamentals

Crude Days of Supply

US days of supply, which quantiﬁes inventories in terms of evolving demand data, show a strong negative correlation with oil prices, making it a useful indicator of where prices ought to be based on market fundamentals. Over the past several years, this balance has ranged from 20 days up to 34 days. Within the US, crude balances have remained relatively steady, with crude days of supply ending the quarter at roughly 28 days of supply available. According to current days of supply, a price around $50-$60 seems appropriate for the market, though historically prices have traded anywhere from $40-$65 when trending near 28 days of supply. •

Source: Energy Information Administration (EIA)

Low Reﬁnery Activity Boosts Fuel Prices

Regional Q2 Reﬁnery Utilization vs. 5-Year Average

Refinery activity has been a key driver of fuel dynamics this year. Sitting at the middle of the fuel supply chain, refiners are a crucial chokepoint, meaning any slowdown can hamper normal product flows. This year refiners across the nation, particularly in California and the Midwest, suffered from unexpected maintenance that kept output below normal levels. Not until June did refinery activity re-approach normal historical levels; this shift corresponds to the peak of crude builds and falling fuel inventories. Overall, refinery maintenance in Q2 averaged just 90%, compared to almost 92% in the 5-year seasonal average. Reduced activity had a clear impact on fuel prices in the second quarter relative to crude. Crack spreads in Q2, a refiner’s margin from converting 3 barrels of crude into 2 barrels of gasoline and 1 barrel of diesel, rebounded strongly from low winter levels. Conversion season began on a slow note due to extremely low crack spreads caused by an abundance of gasoline, giving refiners little incentive to rush through their conversions.

Source: Energy Information Administration (EIA)

3:2:1 Crack Spreads

As flooding and technical issues forced more and more unplanned downtime in PADD 2 and PADD 5, markets quickly realized that fuel prices would have to rise to incentivize more product flow. Crack spreads leapt from $11/bbl in February to over $24/bbl by May. Compared to the second quarter last year, crack spreads ended Q2 slightly elevated, peaking briefly above $24/bbl before crashing lower as refiners completed their planned and unplanned maintenance. •

Source: Energy Information Administration (EIA)

Fundamentals

Crude Inventories

Crude Stocks 5-Yr Range

Crude inventories gave markets a bit of a scare in Q2, as stocks slowly rose above the 5-year average to reach an apex in mid-June at 485 million barrels. But late in June, crude inventories quickly sank lower, with an eye-popping 13 million barrel drop for the week ending June 23. Overall, average quarterly stocks rose by some 25 million barrels in Q2 relative to Q1. The steep climb stemmed from seasonally low refinery utilization, a result of maintenance around the country. Typically, crude inventories would begin dropping in the spring, with steady withdrawals throughout the summer to meet hefty American gasoline demand. With refineries unable to convert the crude into precious fuels, oil simply sat waiting in inventories. As refineries kick up their activity in Q3, expect steady draws that might extend beyond the normal stopping point in early fall.

Source: Energy Information Administration (EIA)

Unlike crude, fuel inventories told a story of tighter markets in Q2. Diesel inventories remained below the 5-year average level for most of the quarter, nearing the bottom of the range by the end of June. Diesel stocks began the quarter at 128 million barrels, falling steadily to end the quarter at 126.8 million barrels.

Diesel Inventories 5-Yr Range

Source: Energy Information Administration (EIA)

Gasoline inventories, though not particularly tight, did normalize over the past few months. Stocks began 2019 by setting a record high, but reﬁnery maintenance limited output while demand remained strong. Those combined factors caused stocks to brieﬂy dip below the 5-year average in April and May, rising back above the average in June before ending the quarter at the average. •

Gasoline Inventories 5-Yr Range

Source: Energy Information Administration (EIA)

Fundamentals

US Oil Production The US remained a powerhouse of oil production, with crude output marching ever-higher. In Q1 2019, production reached 12 MMbpd; by the end of Q2, that number reached 12.4 before falling to end the quarter. Increased American oil has created a predicament for the world’s other major producers, especially Saudi Arabia and Russia. In 2015, Saudi Arabia attempted to get rid of its American competition by ﬂooding the market with product. Americans, however, quickly innovated and found ways to produce oil more cheaply, outlasting the low prices of 2015-2016. The Saudis eventually capitulated and returned to their market-balancing approach through OPEC supply cuts. Today, Russia is the new challenger to America’s oil preeminence. The country has often repeated the importance of not ceding market share to US competitors, even if oil prices return to $50/bbl. Still, for all its rhetoric, the country has supported OPEC quotas and has contributed their portion of cuts to help balance the market.

Year-over-Year US Crude Exports

As US output rises, producers must continuously find new homes for their crude. While local refineries consume a large amount of domestic product, an increasing quantity is exported to keep inventories balanced. Year-over-year crude exports have continued their trend higher. So far, the first half of 2019 has seen export levels average 2.8 MMbpd, roughly 1 MMbpd higher than 2018 and nearly quadruple 2017 output. Ever since former President Obama lifted crude export restrictions in 2015, exports have been on a steady rise. This trend is expected to continue into the foreseeable future, and most major oil forecasting agencies expect the US to become a net oil exporter by 2020. • Source: Energy Information Administration (EIA)

FUEL PRICE RISK MANAGEMENT Protect your budget. Fuel prices can change without warning. Mansﬁeld’s Risk Management team helps you manage fuel price risk and stay on budget. Reliable Nationwide Supply • Firm Pricing Price Insurance • Price Collars Energy Information Administration (EIA) ContactSource: a risk management expert today.

678.207.3138 | hedging@mansﬁeldoil.com | www.mansﬁeld.energy 17

REGIONAL VIEWS Dan Luther, Director, Supply Optimization See his bio, page 34

PADD 1A & B East Coast

Dan’s Dissertation The New York Harbor trading hub is awash in RBOB gasoline ending the second quarter translating to multi-year low prices despite the summer driving season. During the third quarter, look for supply to more than cover any increased demand, keeping values suppressed. Lastly, expect sideways trading in New York Harbor cash diesel as supply and demand are typically balanced during the summer months. •

PADD 1 Imports Close Gasoline Supply Gap Atlantic Coast gasoline inventories dipped to unseasonably low levels in May before rebounding sharply on strong imports. According to the EIA, total gasoline inventory in PADD 1 fell to 59.2 million barrels in April which is a springtime low not seen since 2014. Depressed inventories continued into mid-May as total gasoline inventory in PADD 1 hovered nearly 4 million barrels under the 5-year average for that time of year. Concern from some market participants built as stocks dropped to low levels ahead of Memorial Day and the kickoff to summer driving season, proving supportive to NYMEX RBOB values. •

Pittsburgh Metro Gasoline Buyers Face High Prices on Purported Paperwork Delay Fuel retailers in six surrounding Pittsburgh counties are exempt from selling more expensive summer grade gasoline this year, but Allegheny County – or metropolitan Pittsburgh – locations are stuck providing the low RVP product under a separate rulemaking process. The reason for the delay is up for debate, but since Allegheny County’s Health Department runs its own air quality program separate from the State Department of Environmental Protection, they submitted a separate regulation change with the U.S. EPA. That request is still under consideration. Since there is no ofﬁcial exemption from the federal agency, major fuel distributors in the region will only supply the lower 7.8 pound RVP gas to Allegheny County locations.

PADD 1 Gasoline Inventories

Source: Energy Information Administration (EIA)

This means that gasoline buyers in Allegheny County face prices $.10 to $.15 over surrounding areas and fuel supply is scarce. A shortage event in early June was severe enough that the EPA issued a temporary waiver for the county allowing higher RVP fuel to be used June 1st through June 17th. Since reﬁners are less inclined to produce the more specialized low RVP fuel blend and terminals won’t dedicate as much storage to a product in limited demand, small supply disruptions or increases in demand can dramatically reduce fuel availability. Allegheny County’s separate regulation change continues to move through the EPA approval process, but some fuel providers believe the mandate will remain in place through the end of this summer driving season on September 15. •

Regional Views

PES Refinery Shutdown Adds to Northeast Supply Woes On June 21, the residents of Philadelphia were awoken by a massive refinery fire at the Philadelphia Energy Solutions refinery. The PES facility has the highest capacity of any Northeast refinery, pumping 335 kbpd of oil. According to Baker & O’Brien, the facility produced an estimated 6.3 million barrels of gasoline and 4 million barrels of distillates daily. Having experienced previous financial struggles, the damage from the explosion proved too difficult an obstacle to overcome. PES was forced to declare bankruptcy and shutdown the facility, affecting hundreds of workers. As of the end of the quarter, the company has been working on selling its assets, and while the storage units may be used, the refinery itself is expected to remain inactive going forward. The PES refinery shutdown extends a long trend of Northeast refineries closing their doors. No crude oil pipelines run from the crude hubs further west, so Northeast refineries have historically relied on expensive

rail shipments or Brent-based crude oils, which are generally $5-$10 more expensive than WTI crude. Though their crude prices are high, they must still compete with cheap fuels shipped along the Colonial or Laurel Pipeline, as well as fuels shipped in from overseas. It’s an unenviable position, which explains why the number of East Coast reﬁners has halved over the past 10 years. The Northeast will need to lean on other supply options to remain fueled during the busy summer demand season. The Colonial Pipeline offered up more capacity to push fuels from the Gulf Coast, and European suppliers may increase barge shipments as needed. The outage is also expected to alleviate political opposition against making the Laurel Pipeline bidirectional, potentially allowing Chicago product to ﬂow further east. •

Operating Capacity and Number of East Coast Reﬁneries

Source: Energy Information Administration (EIA), Reﬁnery Capacity Report

Fuel Tax Notice

Effective July 1, 2019, the taxes for fuel products in some states has changed. Below is a list of signiﬁcant changes Mansﬁeld is tracking. The list is not comprehensive list as notices continue to come in from various government entities. Please be aware that these changes may affect the way your fuel is priced in applicable markets.

Effective July 1, 2019 California Tax Changes

Connecticut Tax Changes

Indiana Tax Changes

Missouri Tax Changes

Montana Tax Changes

Ohio Tax Changes

Rhode Island Tax Changes

South Carolina Tax Changes

Tennessee Tax Changes

Regional Views

Gabe Aucar, Senior Supply Manager See his bio, page 34

PADD 1C Lower East Coast PADD 3 Gulf Coast

Tariffs Threaten Gulf Coast Reﬁners' Top Crude Import Source President Trump's threat to impose a 5% tariff on all Mexican imports effective June 10 would have hit US Gulf Coast reﬁners' top source for crude imports. The Gulf Coast imports roughly 600,000 b/d of Mexican crude, far outpacing the second and third top sources: Canada, 350,000 b/d, and Iraq, 330,000 b/d, according to the latest EIA data.

Top importers of Mexican crude in February (b/d):

US Gulf Coast reﬁners have become increasingly dependent on heavy barrels from Mexico and Canada since US sanctions cut off supply of Venezuelan crude earlier this year. On-going shortages of heavy crude could potentially cause tightness in the GC and its destination markets along the Colonial and Plantation pipelines as gasoline and diesel inventories start to drain due to low production. •

Shell Oil Deer Park

148,000

Valero

113,000

Chevron

108,000

Houston Refining

86,000

Phillips 66

70,000

US Gasoline Traders Export Rather Than Ship up the Pipe The busiest U.S. fuel pipeline is running below capacity as Gulf Coast refiners get fatter margins exporting to Latin America than shipping to the Northeast. Colonial’s Line 1, which carries as much as 1.37 million barrels of gasoline a day from the Houston area to North Carolina, has been full less than half the time this year. By comparison, the line, which feeds into another pipe running to New York Harbor, has been overfilled in April and May the past three years according to Colonial data. Demand from Latin American countries whose refineries aren’t able to meet domestic fuel demand, such as Mexico, has pulled supply from the Gulf Coast that would otherwise have flowed northward. At the same time, readily available cargoes from eastern Canada and Europe have kept New York prices in check, even with stockpiles below normal. Shippers are paying their counterparts as much as 1.5 cents a gallon to take over their line space. Selling line space allows sellers to maintain their shipper histories with Colonial, which factors into how much they can transport when the line is overfilled and space is rationed. The arbitrage — or profitability of buying fuel in the Gulf Coast and selling it in New York — has been closed for most grades for long enough that less fuel is being shipped on the line. Data compiled by Bloomberg shows the May spread between NY Harbor reformulated gasoline and Gulf Coast product reached a seasonal six-year low. US government data suggests East Coast gasoline prices should be higher. The EIA reported tocks of RBOB at an eight-month low late in Q2. Inventories would be lower, but the region has been importing at least 12 cargoes a week. Ship-tracking and fixture data show interest remains high in cross-Atlantic shipments. • 20

Here Comes Hurricane Season The East coast is predicted to see four to eight hurricanes develop during this year's hurricane season, including two to four major storms with winds above 111 mph. As the US becomes a larger oil and gas exporter, the storms pose new risks to global ﬂows, on top of the usual risks to domestic US power demand and fuel supplies. The outlook predicts nine to ﬁfteen named storms will develop, including four to eight hurricanes, of which two to four will be Category 3 or stronger. An average season produces 12 named storms, six hurricanes and three major hurricanes. The 2018 Atlantic hurricane season produced 15 named storms, including eight hurricanes, of which two were major events. •

Regional Views

Dan Luther, Director, Supply Optimization See his bio, page 34

PADD 2 Midwest

Dan’s Dissertation PADD 2 Midwest diesel values will continue to trade at depressed levels into the third quarter of 2019 on ample supply and relatively flat demand. Looking ahead to the fall, keep an eye on final spring planting figures, as reduced planting activity would naturally set the stage for a smaller harvest and, therefore, lower fuel demand. •

Severe Midwest Rainfall Impacts Flooding Impacts Diesel Supply and Demand the Ohio Valley Intense rainfall across much of the Midwest had a noticeable impact on the region’s fuel supply chain during the second quarter. Flooding caused at least one refinery closure, and several pipelines had to shut-in operations as pumping stations were overtaken by water. Holly Frontier’s Tulsa, OK refinery was forced to shut the week of May 20 as a precautionary measure due to rising water from the Arkansas River threatening employee safety and plant operability. Around the same time, CVR Energy’s Wynnewood, OK refinery reportedly experienced electrical issues that shut multiple processing units. These unplanned shutdowns had a noticeable effect on Group 3 gasoline basis, with values jumping nearly five cents per gallon on May 23 and an additional nine cents per gallon the next day. Over a three-day period, Group 3 cash values increased $.15 per gallon relative to NYMEX RBOB.

Group 3 Basis

Buyers in the Ohio Valley were not immune to flooding in the Great Plains; they faced a rude return from the Memorial Day holiday when a large regional refiner unexpectedly turned off unbranded rack access to all products across much of their Great Lakes network. Local buyers in many terminal markets were left with little access to nearby fuel, and long hauls from surrounding markets were needed to meet demand. The refiner, Marathon Petroleum, is an integral supplier to the region, especially to markets along the Ohio River, operating refineries in Illinois, Kentucky, Ohio, and Michigan. They did not provide official comment on allocations; however, news broke the same week that MPLX – Marathon’s MLP – shut down the Ozark Pipeline which ferries crude from the Cushing, Oklahoma storage hub to various Midwest refineries. The Ozark line has capacity to carry 360,000 barrels per day from Cushing to St. Louis where it connects with other lines to transport crude throughout the Ohio Valley. MPLX said that the shutdown was due to an “operational check” but many traders suspect flooding throughout Oklahoma as the culprit.

Source: Energy Information Administration (EIA)

The Tulsa downtime had no impact on Group 3 diesel basis though, which trended lower on high inventory levels and low demand. Diesel consumption in the region was unseasonably very low as the wet weather kept many farmers out of the ﬁelds during planting season. Crop progress in most Midwestern states severely lagged the 5-year average, and in some instances planting was at historic lows.• 21

Source: MPLX Energy Logistics

The Ozark Pipeline resumed service the Thursday after Memorial Day and by that Friday Marathon had opened allocations at most of their impacted markets. While physical fuel was more readily available, netbacks – the price paid locally for fuel versus the regional trading hub – remained high as the supply network worked to recover post shutdown. •

Regional Views

Nate Kovacevich, Senior Supply Manager See his bio, page 34

PADD 4 Rocky Mountain

Overview Reﬁned product availability was tight for most of April and early May in the Mountain Region – especially in the Denver Metro area – due to reﬁnery issues’ causing a production slowdown. In light of these local supply constraints, product was shipped via various pipelines from other regions including Wyoming and the Midwest, as well as from Gulf Coast producers. In early June, high diesel prices began normalizing. However, gasoline prices remain elevated as we head into summer driving season.

Denver diesel prices are being impacted by lackluster demand in the Midwest due to a slow start in planting season. Flooding has been a big issue in the Midwest; and while it has had some impact on reﬁning activity, it has had a much larger impact on demand. The Denver market is connected via the Magellan Mountain pipeline in the Midwest. The pipeline feeds gas and diesel from El Dorado, KS, to the Denver Metro area. An abundance of supply in the Midwest could limit any bullish move this fall. Unless we see more unplanned maintenance activity in PADD 4 this summer, the price spikes that we saw last year likely would not materialize. •

Oil and Gas Bill Signed by Colorado Governor in April A new bill in Colorado will give control to local municipalities when evaluating the approval of drilling sites. There has been much discussion over the past few years over the growth of the $32 billion oil and gas industry and its potential impacts on both the environment and local health conditions. The measure, approved by the State House and signed by the Governor, would prioritize regulation by the Colorado Oil and Gas Conservation Commission, mandated to put public health, safety, and the environment ﬁrst when making decisions about further development. Local governments will receive more control to regulate where drilling can occur, thus setting the stage for a more restrictive landscape going forward.

The bill was met with stiff opposition amongst industry stakeholders, who object that the local economy could suffer greatly from reduced oil and gas production. The state of Colorado ranks 5th and 6th in oil and gas production in the United States, respectively. Furthermore, opponents believe any drop in drilling activity would threaten tax revenues, since much of the state’s revenue is tied to the industry. With that said, it is still unclear how speciﬁcally the bill will impact the market. The rulemaking process begins once the bill becomes law. •

Regional Views

Sara Bonario, Supply Director See her bio, page 34

PADD 5 West Coast

For the majority of West Coast markets, fuel prices endured a wild ride during the second quarter of this year. Fuel supplies, already constrained by planned refinery maintenance, were exasperated by multiple unplanned refinery events which dramatically limited supply of refined products in both Northern and Southern California.

According to OPIS, reﬁnery issues in Northern California included:

In a perfect world, refiners prepare for their planned maintenance by stockpiling expected demand ahead of the shutdown. If delays beyond the contingency occur, refiners are forced into the spot market to cover their shortfall, causing additional supply tightness. Additional buying typically has a muted effect on prices unless there are unplanned outages at the same time. This situation occurred this spring on the West Coast, when four refineries experienced unplanned production issues.

In Southern California, reﬁnery outages included:

1. Chevron Richmond reﬁnery (260,000 b/d): Unspeciﬁed process unit upset March 17. 2. Valero Benicia (149,000 b/d): Multiple process units shut down for repair March 24, resulting in 40+ days of unplanned maintenance

3. Chevron El Segundo refinery (290,500 b/d): Planned turnaround/April 4. Marathon Los Angeles refinery (383,000 b/d): Planned turnaround/April 5. Phillips 66 Los Angeles refinery (147,000 b/d): Planned turnaround/Mar + Multiple Unplanned events April - June 6. Valero Wilmington refinery (87,000 b/d): Flaring due to unspecified unit breakdown March 31 In addition to refinery issues, the yearly “blend down,” or transition to lower RVP gasoline, contributed to price volatility in PADD 5. Typically, inventory holders intentionally draw gasoline inventory down to very low levels in order to blend tanks with incoming batches. This works well unless there are shipment delays. In Phoenix, AZ, which requires a boutique fuel blend known as CBG, this exact scenario unfolded. Kinder Morgan Pipeline experienced planned (with short notice given) and unplanned outages which delayed gasoline and diesel batches into Arizona. Typical pipeline cycles were extended from 7 to 12 days, with terminal outages experienced multiple times in days 10-12. While supply issues are not uncommon during the blend down season, the issues experienced this year caused extreme price spikes because they were occurring hand in hand with one another.

California Basis Prices

Source: Oil Price Information Service (OPIS)

Fuel Buyers should see less volatile price moves during the coming summer months. California is net long distillate as reﬁnery utilization rises and remains high to maximize gasoline production. Watch for news of hot temperatures, which have in the past stressed the electricity grid and contributed to power brown outs. This may cause small blips in reﬁnery production that will impact near-term pricing. Maintaining fuel purchases towards the top of tanks will help mitigate the impact of these blips. • 23

Regional Views

Nate Kovacevich, Senior Supply Manager See his bio, page 34

Canada

Canadian Crude Returns to Historical Levels Production limits put in place by the Canadian government seem to have effectively rebalanced the market for producers, bringing WCS prices (as a discount to WTI crude) to the highest levels since 2017. Pipeline constraints had caused Alberta’s markets to ﬂood with crude stockpiles that could not be shipped; the production limits were intended to curtail the crude stock builds.

Western Canadian Select Discount to WTI Crude

In both May and June, the Canadian government reduced the 325 kbpd limits by 25 kbpd, leaving the limit at 275 kbpd heading into July. The government seems happy with the results it has achieved so far, and no plans have been announced to further let up on the production limits. Extremely cheap Canadian crude had been a significant boon to Chicago refiners set up to pull from the heavy crude fields in the north. Those refineries could buy crude far cheaper than the prices paid in the Gulf Coast or Northeast, and refineries could use those cheaper prices to discount their fuel prices and grow market share. While $15/bbl discounts are sufficient for Chicago refineries to continue this play, they likely will not enjoy the boondoggle seen in 2018, which may lead to slightly tighter markets in Chicago and surrounding markets. •

Source: CME Group

Enbridge Pipelines Running into Issues in Minnesota and Michigan The Minnesota Court of Appeals ruled against Enbridge’s Line 3 pipeline replacement project, blaming state regulators for not considering the impact of a potential oil spill in Lake Superior’s watershed. This is the latest blow to the Canadian company attempting to replace the aging and corroded 34-inch (750 kbpd) pipeline, which currently operates at just ﬁfty percent capacity. Enbridge had already announced a one year delay of its Line 3 segment due to permitting issues. The decision forced one large oil sands producer to hold off on a $200 million expansion due to limited pipeline takeaway capacity. The Minnesota ruling came on the heels of a separate issue with the company’s Line 5 segment in Michigan. The new government is hoping to shut down the aging line within two years, which is not enough time for Enbridge to build a

Source: Enbridge

replacement section that would require building a tunnel in the Straits of Mackinac. The company had originally made an agreement with former Governor Rick Snyder, but that agreement has come into question under new leadership at the State Capitol. Canada continues to run into issues expanding its tar sands takeaway capacity, which has caused major price dislocations with other crudes around the world. This has prevented further development in Alberta and has inhibited the country’s most valuable resource from being transported to other parts of the world for consumption. Until takeaway capacity is addressed, price discrepancies will likely continue. It will be interesting to see what will happen to gasoline and diesel prices in the northern U.S. states if one of the primary crude suppliers has no way to reach them. •

A LT E R N AT I V E F U E L S Sara Bonario,

About E15

Supply Director See her bio, page 34

RENEWABLES

Trump Administration Creating a Path Forward for E15 The U.S. Environmental Protection Agency (EPA) released on May 31 a pre-publication version of its final rule allowing retailers of gasoline to sell fuel with 15% ethanol year-round. The final rule from the EPA eliminates the barrier that required retailers in many areas of the country to stop selling E15 during the summer months by allowing E15 to receive the same summer volatility adjustment the EPA permits for E10. This is a change to the EPA’s interpretation of the Clean Air Act, which imposed a ban in 2011 under the direction of President Obama to reduce smog pollution. Effective immediately, gasoline and ethanol fuel blends containing from 9-15 percent ethanol will only need to meet 10 psi volatility standard, instead of the statutory 9 psi requirement. This news came just hours before the official start of summer driving season, June 1 – when E15 could not have been sold due to restrictions on Reid Vapor Pressure. The elimination of the ban was first promised by President Trump in October 2018. Many in the industry were concerned he would not follow through on his promise. The late announcement of the final rule will prevent some from making the infrastructure changes and improvements necessary to immediately implement sale of the fuel; however, groups from both the Democrat and Republican party, as well as the Renewable Fuels Association (RFA), applaud the action as being beneficial for the country by supporting U.S. farmers and domestic ethanol producers.

E15 is a fuel blend containing 15% ethanol and 85% gasoline, and the product burns cleaner than regular gasoline. E15 is the most tested fuel in history, and is EPAapproved for use in all 2001 and newer cars, SUVs, and light-duty trucks. E15 is commonly sold as Unleaded 88 because it contains 88 octane rating while gasoline blended with 10% ethanol has an octane rating of 87.

“Corn farmers have been long-time advocates of higher blends of ethanol such as E15, touting its beneﬁts to both the farmer and the consumer,” said Lynn Chrisp, NCGA president. “Farmers are facing some tough times which makes this announcement particularly welcome. We thank President Trump for following through on his promise to rural America and USDA Secretary Sonny Perdue and supporters in Congress for their outspoken commitment to year-round E15.” The updated interpretation to the Clean Air Act is not welcomed by all. Groups such as the National Wildlife Federation are not pleased. Collin O’Mara, president and CEO of the National Wildlife Federation, said that the move is “illegal under the Clean Air Act and will accelerate the destruction of wildlife habitat and pollution of our air, and drinking water.”

While the EPA succeeded in publishing the rule in time for summer driving season, its ultimate impact may be decided in the courts. It is “The ethanol industry thanks President Trump for expected that both oil companies and personally championing this critical regulatory environmental advocates will challenge the reform that will enhance competition, bolster the move in court. rural economy, and provide greater consumer “EPA has left us no choice but to pursue legal access to cleaner, more affordable fuel options,” action to get this unlawful rule overturned,” said said Geoff Cooper, RFA President and CEO. Chet Thompson, the president and CEO of the The National Corn Growers Association also American Fuel and Petrochemical Manufacturers applauded the change. trade group. • 25

Auto manufacturers approve the use of Unleaded 88. According to a Renewable Fuels Association (RFA) analysis, more than 93% of model year 2019 vehicles have been explicitly approved for the use of Unleaded 88 by auto manufacturers. General Motors recommends use of Unleaded 88 beginning with its 2012 model year vehicles and Ford recommends Unleaded 88 for its 2013 and newer vehicles. Unleaded 88 is also approved for use by Volkswagen, Audi, Toyota, Land Rover, Porsche, Jaguar, Honda, Subaru, and certain models of Mercedes-Benz and Lexus. Unleaded 88 can easily be identiﬁed at the pump. Look for the governmentrequired orange and black label referencing E15 for use in 2001 and newer passenger vehicles and ﬂex-fuel vehicles. Non-automotive uses for Unleaded 88 are not approved by EPA because many non-automotive engines do not have the sophisticated computer controls to adjust for fuel variations. These engines have numerous applications and vary in types and sizes such as boats, motorcycles, lawn mowers and other small off-road engines.

Alternative Fuels

Martin Trotter,

SUPPLY:

Pricing & Structuring Analyst

Permian Prices Stall Production

See his bio, page 34

NATURAL GAS

Despite the phrase “lowest it can go is zero,” many producers in the Permian would argue otherwise after early April when for the ﬁrst portion of the month, Waha (Texas hub) natural gas daily prices traded in the negative. While prices crept into the positive for the second half of the month, they were not able to offset early month discounts, with full month average prices at El Paso trading around (.10)/dth. Similarly, Waha ended up just shy of negative twenty cents for the month. The record discounts were partly a result of strong output from the Permian. Compounding the problem, however, were natural gas maintenance issues in the beginning of the month. While production in the Permian has nearly doubled in the past few years, oil and natural gas infrastructure and pipes have not been put into service soon enough. Producers in the region were forced to dial back production into May. Apache Corp. cut back production of natural gas by about 250 mcf to prop up natural gas prices. While many projects are under construction to facilitate moving production out of the region, price volatility is likely to prevail until other options are online. •

Source: Energy Information Administration (EIA)

DEMAND:

ConEd Places Moratorium on Firm Service Requests In March, Consolidated Edison, a prominent New York-based LDC, enacted a moratorium on new natural gas hook ups. The moratorium, ofﬁcially announced in January 2019, comes in response to overwhelming increases in ﬁrm natural gas demand in the area over the past couple of years. Many real estate developers now face a hault in development and massive potential losses on investments as a result, though ConEd notes they have been warning of the possibility since early 2017.

new pipeline projects in the Northeast, compounding supply challenges.

Customers in the area continue to move away from older, traditional heating oil-based systems and towards natural gas. Together with burgeoning economic and infrastructure growth in the surrounding areas, this uptick in consumption has increased peak demand between 2011 and 2017 more than 30%, with projections of an additional 23% in the next twenty years. NIMBY (Not in My Backyard) Source: Con Edison, Inc. concerns have prevented

In late April, ConEd announced a plan to alleviate supply concerns. Should plans progress, Tennessee Gas Pipeline will upgrade existing compressors outside of New York that allow ConEd to take an additional 110 million cubic feet per day into Westchester and the surrounding area. The alleviation, however, will not be immediate. If timetables remain on schedule, new capacity will not be available until late 2023. The last expansion took place in 2013, when Texas Eastern introducted additional capacity to the area. While the plan does secure a continued move away from reliance on heating oil, continued aversion to additional infrastructure could limit growth. •

Alternative Fuels

NATURAL GAS STORAGE: After the roaring start to the winter season in November and tapered withdrawals in December and thereafter, storage levels ended the traditional withdrawal season significantly lower. Clocking in at 1.14 Bcf, working natural gas in storage was the lowest it has been since 2014. The influx in shale gas and record production has consistently worked to offset increasing demand, and has thusfar successfully staved off extreme price volatility. On the other hand, suppressed prices and ample supply have thwarted the incremental value of storage expansion efforts, leaving many projects frozen or on the cutting room floor.

Working Gas in Underground Storage Compared with the Five-year Maximum and Minimum

Still, natural gas production, exports, and reliance as a bridge and back-up to renewables continues to increase. As both domestic and international consumers become increasingly reliant on production, increased reserves may be required to navigate ebbs and flows in the marketplace. The burgeoning production region of Appalachia has taken note. Recognizing the associative markets of natural gas production, a plan has been put forth to build a storage facility to house residual natural gas liquids. Investors are seeking a controversial federal loan guarantee for the project, which is touted to reduce emissions by limiting transport as well as maximizing the value of local resources. The storage hub could potentially compensate for lack of regional export infrastructure and entice large end-users to the area. While the first ever Appalachian Storage Hub Conference was held the first week in June, opponents of the plan await a ruling on a request made in May to block the Department of Energy from issuing a loan guarantee. •

Note: he shaded area indicates the range between the historical minimum and maximum values for the weekly series from 2014 through 2018. The dashed vertical lines indicate current and year-ago weekly periods.

Source: U.S. Energy Information Administration, (EIA), Weekly Natural Gas Storage Report, released: July 3, 2019

VIEWPOINTS By Nikki Booth, Senior Logistics Manager, Carrier Relations

FMCSA Launches Under 21 Military CDL Pilot Program

The Federal Motor Carrier Safety Administration (FMCSA) announced on June 3rd a new three-year pilot program to study the feasibility, benefits, and safety impacts of allowing 18-20 year-old drivers to operate commercial motor vehicles (CMVs) in interstate commerce. Currently, Federal Regulations (specifically 49 CFR section 391.11) require drivers to be at least 21 years old to drive in interstate commerce. However, regulation 49 CFR 383.71 allows for drivers to obtain a CDL at 18 years old, and most States allow 18 to 20-year-old drivers to operate in intrastate commerce. FMCSA is doing this pilot program at the direction of Congress via the Fixing America’s Surface Transportation (FAST) Act, section 5404. The FAST Act requires the Secretary of Transportation “to establish a pilot program to study the feasibility, benefits, and safety impacts of allowing a driver under the age of 21 to operate a commercial motor vehicle in interstate commerce.” Throughout this pilot program, FMCSA will collect and analyze data relating to crashes and behaviors of participating drivers. Within one year following the completion of the pilot program, the Secretary of Transportation will forward recommendations to Congress describing the findings and recommendations. FMCSA is coordinating with military services and motor carrier associations to recruit driver and motor carrier participants. The program is designed to help veterans and reservists find jobs in the trucking industry, as well as serving as another step in the process toward bringing younger faces into the industry. The four branches of the Department of Defense - Army, Marine Corps, Navy, and Air Force – provide extensive training to operate heavy-duty trucks and buses. These services provide additional training for other heavy-duty specialty vehicles (e.g., gasoline haulers, construction vehicles, and military equipment transport oversize/overweight [non-track] vehicles). 29

Both FMCSA and the American Association of Motor Vehicle Administrators have reviewed the basic training programs for heavy vehicle operations, based on the military occupational specialty code of the service members, and determined them to be equal to, or greater than, the standards required for civilian CDL applicants. FMCSA will review and verify details of any past CMV driving experience and demographic information for each driver to assess qualiﬁcations for participation in the study and/or control groups. The pilot program is open to active duty, veterans and members of the National Guard and military reserve components as long as they meet the basic requirements. Drivers are eligible to participate in the pilot if they: • Have received heavy-vehicle driver training and experience while in the military • Carry a designated military occupational specialty code or job rating approved for the pilot • Are hired by a participating motor carrier The American Trucking Associations supports FMCSA for implementing this pilot program. With the driver shortage increasing daily, the ﬁndings from this pilot program could have a profound impact on driver recruitment in years to come. •

Nikki A. Booth Senior Logistics Manager, Carrier Relations Nikki manages the strategic direction of Mansﬁeld’s full truck load network across the U.S. and Canada. Her team works closely with fuel transport companies to handle freight procurement, address logistical concerns, and identify cost-saving solutions. Nikki has been with Mansﬁeld since 2007 and has over 14 years of experience in supply chain management, with 11 years focused on energy transportation and logistics.

Viewpoints By Jim Kincaid, Director of Mansﬁeld Fuel Systems and Services

Fuel Systems Management

In a world of ever-increasing demands for improved operational efﬁciencies, fundamental best practices can go overlooked. This is often the case with on-site fueling facilities where safety and environmental awareness are of the utmost importance. Instituting a basic weekly inspection program that promotes safe operations, informs of proper environmental practices, and reduces the high costs that often result from fuel system neglect can prove a valuable best practice.

Weekly Fuel System Health and Safety Inspection Fuel Dispensers are frequently subjected to extremely adverse conditions such as heavy usage, constantly changing environmental factors, and in many cases, improper handling. As part of a basic, preventative program, visual inspections of the nozzles, hoses, ﬁlters, and overall dispenser status should be performed on a weekly basis.

Damaged Nozzles and Worn Hoses often result in minor leaks, leading to poor safety conditions along with substandard environmental practices. In the event that these items are encountered during the inspection, a simple service call will resolve the matter quickly and with minimal disruption to your fueling operations. If these replacements occur with increased frequency, high-hose retrievers or other methods that prevent the equipment from encountering rough surfaces should be considered. 30

The weekly inspection should also include a review of the Fuel Flow Rate. Less than expected flow rates typically indicate the need for filter replacement. It is a good practice to understand the manufacturers rated flow rate and compare that to the actual. Typically, the actual rate will be a few gallons less due to restrictions created by the hose, nozzle, and swivel (suction system variances will be greater). If a significant variance is detected, it is recommended that new filters be installed and dated. This too may be managed by a simple, non-intrusive service call. In most cases, Filter Changes should be completed on a quarterly basis; but this may vary due to other factors. Should slow flow conditions persist, Fuel Quality should be evaluated through multipoint sampling that encompasses the bottom and mid-points of the tank, especially in the area closest to the suction point. These samples may be conducted visually or by a certified laboratory.

Fuel sampling may isolate the problem to any number of potential tank issues such as particulate created by corrosion, microbial growth, or improper fuel additive techniques. In many cases, the use of a more forgiving ﬁlter is introduced in response to slow ﬂow, when in reality this measure only leads to more severe problems – these units will allow more particulate to be introduced into the vehicle. In the event that the sampling analysis indicates a moderate-to-severe fuel quality condition, cleaning and polishing are most likely the most effective remedies.

Viewpoints For Above Ground Storage Tanks (ASTs), the inspection process should include ensuring the spill kit is supplied properly, the area is clear of debris, the level monitor is functioning properly, and the overall condition is in good working order. Overfill prevention equipment should also be evaluated in cases where it is visible or a testing procedure exists. This evaluation should include confirmation that there are no visible leaks and ensuring that all openings are in place and sealed properly, in order to minimize water intrusion. A quick look at dispenser containment boxes, if present, and fill boxes for water or fuel should also be considered.

Underground Storage Tank (UST) inspections should conﬁrm that

Whether for a UST or AST, weekly system inspections should be an integral part of your fuel operations. These procedures are recommended to ensure optimal operation, adherence to environmental responsibilities, and establishment of a safe fueling program. •

openings are sealed correctly, ﬁlls are labeled in accordance with established regulatory guidelines, the operating area is clear of debris, and the overall functionality and safety of the system are in good working order. During this process, it is always a good idea to open the speciﬁed Containment Areas in order to determine the presence of water or fuel. In many cases, these areas are monitored by an Automatic Tank Gauge (ATG) which is often not only responsible for managing inventory levels but also testing the mandated environmental characteristics of the tank and/or piping systems. Any alarm condition detected on the ATG should be documented and resolved in an expedited fashion.

Jim Kincaid Director, Mansfield Fuel Systems and Services Jim is Mansfield’s Director of Fuel Systems and Services, oversees Construction Management, Fuel Quality, and Repair & Environmental Services programs for Mansfield. Through his experience implementing Mansfield’s go-to-market strategy for solutions architecture, he has developed enterprise-wide fuel management systems for customers spanning the commercial, government, and retail sectors.

Complete Design-Build and Support Services for On-Site Fueling Systems

Fuel Systems & Services Mansfield Energy offers a complete suite of fueling system design, installation, and maintenance services. From bulk DEF storage and cardlock options to tank monitoring, fuel quality management, and 24/7 support, you can count on Mansfield to keep your fueling systems clean, environmentally compliant, and in good working order. • Design-Build Services • Inventory Management • Transaction Management • Repair & Maintenance • Environmental Compliance

800.695.6626 www.mansfield.energy

Viewpoints By Della Richardson, Director of Mansﬁeld Spot Delivered Sales

Spot as a Best Practice When designing a fuel strategy, many companies simply lock in 100% of their volume on a fuel contract to guarantee supply all year. But many fail to consider the beneﬁts of optionality, having some room to play the market to keep costs low. Does your company include spot purchasing as a part of your fuel strategy? If spot hasn’t been a part of the conversation, it’s worth considering. Odds are good that at some point, you’ll need to procure gallons on top of your normal volume. Rather than reactively purchasing spot fuel, your fuel strategy may beneﬁt from a proactive strategy to keep your prices low.

What is Spot Purchasing? Spot purchasing means buying fuel without a contract; each delivery is bid out to ensure your company receives the lowest price. There are two primary reasons customers utilize spot

purchasing – to ensure competitive prices, or to cover demand when the contracted supplier cannot deliver. The spot buyer has no obligation to buy, while the spot seller has no obligation to sell. Buying spot carriers more risk, but provides more ﬂexibility.

What are the Beneﬁts of Spot Purchasing? Spot buyers keep prices competitive by soliciting numerous quotes daily, weekly or monthly for fuel deliveries. Receiving multiple prices provides market intelligence so you can take advantage of market forces that create savings.For instance, if a particular fuel marketer is oversupplied and absolutely must move product, they will deeply discount their fuel in order to do so. Positioning your fuel purchaser to take advantage of these short-term market opportunities goes a long way in optimizing fuel purchases. Additionally, because your business is not guaranteed to a spot seller, you should expect a high level of communication and service in order to earn your business on a daily basis. Supplementing your contractual fuel procurement with spot also mitigates risk through portfolio diversiﬁcation. If you’ve been purchasing fuel for any length of time, you have undoubtedly encountered some sort of supply disruption. Aging infrastructure and a driver shortage do not a smooth fuel supply landscape make. When there is a supply disruption and your contracted supplier or carrier cannot deliver in time, having a network of spot sellers will provide a safety net to make sure your site has options.

Viewpoints

How Do You Implement Spot into Your Strategy? Take some time to review your current fuel purchasing portfolio. First, you’ll need to know how many gallons of fuel your company uses and what percent of that (if not all) is currently contracted. Next, determine your ideal balance between contracted gallons and uncontracted. Keep in mind that the more spot purchasing your company does, the more resources you’ll need to monitor daily market conditions. Choosing a supplier with a broad scope is particularly beneﬁcial in the spot market. Often, a supply shortage will leave local fuel marketers with no ability to meet contractual commitments; a supplier in many different markets can long-haul product from distant markets when necessary to meet your spot needs. Finally, speak with your spot suppliers about market dynamics and arbitrage opportunities. At times, long-hauling from another market may be cheaper than the local market, even when accounting for additional freight costs. As suppliers identify these opportunities on your behalf, they can communicate with you to see if you have room for the discounted fuel. Whether or not you choose to purposefully implement a spot procurement strategy, it is helpful to have back-up suppliers ready for each site in the unlikely event your standard supplier cannot

perform. Whether you’re seeking pricing competitiveness or reliable emergency supplies, implementing a spot procurement approach can pay dividends for your company and provide more sophisticated market insights. Ultimately, your goal is to beat the competition and operate effectively, and a spot fuel program can help you achieve your procurement goals. To learn more about spot purchases, email spotquotes@mansﬁeldoil.com to speak with a Delivered Spot representative about your fuel purchasing strategy. Mansﬁeld’s Spot team is set up in every market in the US and Canada, ensuring reliable, competitive supply and unmatched service. •

Della Richardson Director of Mansﬁeld Spot Delivered Sales Della leads Mansﬁeld’s Delivered Spot sales team. She is responsible for crafting a national-wide sales strategy, building an operational framework, setting goals, and coaching a team to exceed budgeted growth targets.

No Commitment Fuel Pricing Mansfield Energy offers no obligation purchase options based on daily fuel pricing. Leverage Mansfield’s unmatched supply and carrier network for reliable, competitive, and flexible spot pricing programs. COMPETITIVE PRICING • NO LONG-TERM CONTRACT FREE QUOTES • RELIABLE SUPPLY • NATIONWIDE COVERAGE

Contact Mansfield Today spotquotes@mansfieldoil.com | 800.695.6626 www.mansfield.energy 33

Mansﬁeld National Supply Team Contributors

Mansfield’s supply team brings unique experience and industry expertise to the table. From contract pricing and hedging to trading of fuel, renewables and alternatives such as CNG and LNG, the Mansfield supply team covers the gamut of knowledge required to manage today’s complex national fuel supply chain. Although they work as a national team, each member’s regional focus enables Mansfield to deliver geographic-based supply solutions by more efficiently managing market-specific refining, shipping and terminal/assets.

Andy Milton

Sara Bonario

Senior VP of Supply & Distribution

Supply Director

Andy heads the supply group for Mansﬁeld. During his tenure, the company has grown from 1.3 billion gallons to over 3 billion gallons per year. His industry experience spans all aspects of the fuel supply business from truck dispatch, analytics, and index pricing to hedging and bulk purchasing. Andy’s expertise in purchasing via pipeline, vessel, and the coordination via futures and options for hedging purchases enables him to successfully lead a team of experienced and motivated supply personnel at Mansﬁeld. His team handles a wide geographic area of all 50 states and Canada, including all gasoline products, ULSD, kerosene, heating oil, biodiesel, ethanol, and natural gas. •

Sara manages the team responsible for procurement and optimization of all reﬁned fuels for Mansﬁeld’s Great Lakes, Central, and Western regions. She is also responsible for nationwide purchasing, hedging, and distribution of renewable fuels. Sara has an extensive supply and trading background, with over 25 years of experience in the oil industry. •

Gabe Aucar Senior Supply Manager Gabe manages Mansﬁeld’s southeast fuel procurement team with responsibilities for supply contract negotiations as well as providing trading and business development expertise. Gabe holds an MBA from Pace University and has over 12 years’ experience in the energy industry. •

Nate Kovacevich Senior Supply Manager Before joining the company, Nate worked as a Senior Trader, where his responsibilities included managing reﬁned product and renewable fuels procurement, handling all hedging-related activities, and providing risk management tools and strategies. He performed commodity research and analysis for customers with agricultural- and petroleum-related risk, devised and implemented risk management programs, and executed futures and option orders on all the major exchanges. •

Martin Trotter Pricing & Structuring Analyst Martin is responsible for handling natural gas and electricity pricing, deal ﬂow, and analytics for Mansﬁeld’s Power & Gas division. Before his current role, he served as the Sales Analytics Supervisor and held various roles on the Risk & Analysis Team. •

Alan Apthorp

Dan Luther

Chief of Staff

Director, Supply Optimization

Alan is the lead author and editor for FUELSNews Daily and FUELSNews 360. He is responsible for providing insights to the executive team, including market trends and analysis. Before his appointment to Chief of Staff, Alan worked in data analysis and visualization as a Market Intelligence Analyst. •

Teamwork

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Innovation

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Integrity

Dan manages Mansﬁeld’s Great Lakes and Northeast fuel procurement teams with responsibilities for supply contract negotiations, bulk inventory purchases, and hedging. Dan holds an MBA from Georgia Tech University and a BSBA in Supply Chain Management and Marketing from Ohio State. He has over 13 years’ experience in the energy industry. •

Excellence

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Conscientiousness

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Personal Ser vice

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* Some of the information provided is owned and licensed by OPIS. In no event shall any user copy, modify, publish, retransmit, or otherwise reproduce information from OPIS. Copyright 2019. All rights reserved. Disclaimer: The information contained herein is derived from sources believed to be reliable; however, this information is not guaranteed as to its accuracy or completeness. Furthermore, no responsibility is assumed for use of this material and no express or implied warranties or guarantees are made. This material and any view or comment expressed herein are provided for informational purposes only and should not be construed in any way as an inducement or recommendation to buy or sell products, commodity futures, or options contract.

FUELSNews 360° MA RK ET N E WS & IN FO RM ATIO N

Mansfield Energy Corp www.mansfield.energy www.fuelsnews.com 678.450.2000 1025 Airport Pkwy SW Gainesville, GA 30501 United States of America

Teamwork • Innovation • Integrity • Excellence • Conscientiousness • Personal Ser vice