FUELSNews 360° - Q4 2016 by FUELSNews

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I N F O R M A T I O N

Table of Contents FUELSNews 360° Quarterly Report Q4 2016 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 as well as provide insight into upcoming challenges facing the energy supply chain.

Executive Summary

Overview 6

Regional Views continued

October through December 2016

Economic Outlook 8

Global Economic Outlook

U.S. Economic Outlook

Oil Stockpiles Continue to Burden the Market

U.S. Rig Count Restored, Production Poised for Resurgence

Retail Prices Surge Above Last Year’s Levels

20 22 24 26

Canada

Commentary: Nate Kovacevich

Renewable Fuels

Commentary: Sara Bonario

Natural Gas

Power

Commentary: Martin Trotter Commentary: Keith Crunk

Viewpoints

PADD 1A, Northeast

Commentary: Amy Nguyen

Alternative Fuels

Regional Views 18

PADD 5, West Coast, AK, & HI

Fundamentals 12

The End of the Oil Price War

by Dr. Nancy Yamaguchi

Sleep Apnea: A Truck Industry Epidemic by Dan Kemeny

Commentary: Andy Milton

PADD 1B & 1C, Central & Lower Atlantic

Commentary: Chris Carter

GPS Tracking Versus the Fourth Amendment by Nikki A. Booth

PADD 2, Midwest

Commentary: Dan Luther

PADD 3, Gulf Coast

Four Steps to Creating a World-Class Mobile Refueling Program by Jeremiah Cooke

Commentary: Dan Luther

PADD 4, Rocky Mountains

Commentary: Nate Kovacevich

Urea and DEF Prices Set to Rise by Alan Apthorp

FUELSNews 360˚ Supply Team

Q4 2016 Executive Summary Oil prices ended 2016 on a high note, led by the OPEC agreement to cut

Trump’s appointments of Rex Tillerson, former CEO of ExxonMobil, as Secretary

production by 1.8 million barrels per day, or 1.5% of global production. Prices

of State and Scott Pruitt, former Oklahoma Attorney General who is best known

remained in the mid-$40s to mid-$50s range, falling from $50/bbl following the

for fighting against the regulatory power of the EPA, as the new Administrator of

Algiers agreement in September to lows of $43/bbl amid oversupply concerns,

the EPA indicate that he will be friendly toward the oil and gas industry, but

only to resurge after the November agreement to 18-month highs of nearly

specific energy policies are yet to be seen. Renewable fuel markets have been

$55/bbl. After two years of unrestricted production, analysts are optimistic that

shaken, with biodiesel RIN values experiencing extremely high volatility following

the agreement will bring supply and demand back into balance. Most experts

the election.

now agree that $60/bbl is a reasonable expectation for 2017.

Global economic growth, led by growth in China and emerging markets, is

While international events drove the majority of price movements across the U.S.,

forecast to rise to 3.4% in 2017. Consumer sentiment in the U.S. is high on the

regional factors also drove volatility in local fuel prices. A second leak in the

heels of the election, and unemployment is at its lowest point since 2007. These

Colonial Pipeline temporarily cut off the Southeast’s supply once again and

factors are expected to drive strong oil demand in 2017, which should help

generated a 15-cent price surge, while product quality concerns in West Texas

deplete high inventories and push oil and finished product prices higher.

led to a pipeline shutdown and 20-cent premiums on local fuel.

Conversely, the market expects two interest rate hikes by the Federal Reserve in

Hurricane Matthew caused extensive destruction in Florida, Georgia, and the

2017, which could have a bearish effect on prices.

Carolinas, causing fuel logistics concerns. Most regions saw overall prices rise in

Overall, the market is setting up to be net bullish heading into 2017, especially

response to OPEC’s production, though the West Coast, isolated from national

as inventories are drawn down to their historical five-year average range. The

supply trends due to its different regulatory policies, has yet to experience those

market will be almost entirely directed by the outcome of the OPEC deal. If the

price hikes. Inventories in most regions remain high, preventing prices from rising

deal proves effective, analysts expect crude prices to rise into the low- to mid-

too quickly, but international supply cuts may cause those stocks to dwindle faster

$50s during Q1 as the market adjusts to supply deficits, rising to the high-$50s

than expected.

and low-$60s once inventories are drawn down.

Looking to the first quarter of 2017, numerous factors are at play that will affect

New U.S. production will likely cap prices around $60/bbl. Should evidence of

prices. All attention remains on the OPEC deal and whether the organization will

widespread OPEC cheating be uncovered, prices are expected to drop into the

be able to prevent individual countries from “cheating” and raising production.

$40 – $50 range once again, or possibly lower, depending on the extent of the

Countries not party to the agreement, such as the U.S., are expected to raise

abuse. OPEC has historically failed to achieve compliance, and many believe

output, which may mitigate some of the upward pressure the deal is expected to

cheating is a question of “when,” not “if.”

place on prices. As we move through the first half of 2017, expect markets to react more strongly to the EIA’s weekly fuel stock reports, which will show whether production cuts are truly taking place.

In this edition of FUELSNews 360°, we have some exciting articles that you won’t want to miss. Dr. Yamaguchi’s article, “The End of the Oil Price War,” which can be found on page 40, provides in-depth analysis on the OPEC deal and why it

With the end of 2016 comes the end of the Obama administration, along with

has had such a profound impact on fuel markets. For fleet managers, be sure to

the uncertainty of what energy policies President Trump will enact. Trump’s

read Jeremiah Cooke’s “Four Steps to Creating a World-Class Mobile Refueling

statements appear supportive of fossil fuel development, which could help

Program” on page 48, which contains valuable insight regardless of your current

producers in the U.S. compensate for OPEC cuts.

fueling method. We hope you enjoy this quarter’s issue of FUELSNews 360°. Please feel free to email us at fuelsnews@mansfieldoil.com with feedback, questions, or simply to request additional copies. Thanks for reading!

Overview October 2016 through December 2016 The fourth quarter of 2016 brought what analysts had been predicting all year long: an end to the unrestrained supply glut. The third quarter had taken a few steps back from the path to global supply and demand balance, with brimming stockpiles and receding prices. After two years of declining prices, the third quarter’s imbalance finally galvanized action from producers in the fourth quarter. OPEC surprised skeptics by coming to an informal agreement at the Algiers meeting in late September. In November, OPEC shocked the markets again by laying out an agreement to cut production by approximately 1.2 MMbpd during the first six months of 2017.

Crude and product prices trended down for most of July and into August, and markets received a shock when Brexit supporters won the vote in the United Kingdom, leading to Britain’s exit from the European Union. WTI prices dipped below $40/b in early August. OPEC and Russia planned an informal meeting in Algiers to discuss a market stabilization strategy, but the market was largely unconvinced. OPEC headlines were regarded as more “verbal intervention,” and the Algiers meeting was expected to be a disappointment akin to the Doha meeting.

Adding credibility to the production cuts, 11 non-OPEC countries, including Russia, agreed in December to cut and/or allow production to decline by an additional 0.6 MMbpd. These agreements were of historic significance given the difficult relations among OPEC countries and several of the non-OPEC participants.

The successful Algiers agreement pulled oil prices out of their downward slide. October and November saw prices move up and down as OPEC and non-OPEC producers went back and forth on making a formal commitment prior to the November 30 meeting in Vienna. On the eve of the meeting, the odds of a formal agreement appeared low, and prices slumped to $45/b.

The year had seen oil prices fluctuate substantially. Prices for crude, distillates, and gasoline (RBOB) all increased in Q2 relative to Q1, but both crude and RBOB fell in Q3. Distillate prices were the only ones to rise in the third quarter.

OPEC’s successful agreement took the market by surprise, and WTI prices immediately surged above $51/b. This success was carried forth when the nonOPEC 11 joined the agreement. December prices for WTI averaged over $52/b.

WTI Crude Oil Futures

With the changing supply situation, however, Q4 saw prices shoot to their highest level in 2016 for distillates and crude oil, while RBOB’s rise left it just short of Q2 prices. WTI averaged $49.29/b in Q4, a 10% increase over Q3’s average price. Distillate prices rose to an average of $1.57/gallon, an 11% increase over Q3. RBOB prices rose to $1.48/gallon, an increase of 6%.

Quarterly Oil Prices 2016: Q3 Weakness Gives Way to Surge in Q4 ($/gal)

Source: New York Mercantile Exchange (NYMEX)

Futures prices for RBOB slumped as low as $1.27/gallon in early September, the lowest price since February. The Algiers agreement, and the November OPEC production cuts, boosted product prices in November and December. Source: New York Mercantile Exchange (NYMEX)

Crude prices were extremely volatile throughout 2016, with WTI crude prices ranging from February lows of $26/b to December highs of $54/b. At the year’s outset, expectations pointed toward a rough balance to be achieved by the fourth quarter of this year and WTI crude prices approaching the $50/b level. Balance was indeed achieved, but the path was far from smooth. When Iran reentered the market in early 2016, its determination to restore production to pre-sanctions levels brought prices crashing down below $30/b. OPEC’s “verbal interventions” gave support to fuel prices through most of Q2 and Q3, but market skepticism quickly quenched these rallies, particularly after OPEC’s inability to reach an agreement at the April Doha meeting.

RBOB prices bounced back above $1.60/gallon in mid-December, despite it being the off-season for gasoline consumption. Diesel prices began the quarter at around $1.55/gallon. Prices fell below $1.40/gallon in mid-November when the OPEC meeting seemed destined to fail, but the post-agreement surge in market confidence brought distillate prices up to an average of $1.66/gallon in December. The Dow Jones Industrial Average showed remarkable growth during the fourth quarter. The DJIA started the quarter at 18,253.85 and it ended at 19,762.6, an increase of 8%. Investors cheered at the numbers, hoping for the index to hit the 20,000 mark before the New Year’s holiday. Investors now look for the DJIA to hit this landmark number in 2017.

Overview At the retail level, gasoline prices at the beginning of Q4 averaged $2.245/gallon. Average retail gasoline prices rose to $2.309 by the end of the quarter, an increase of $0.064/gallon. Gasoline prices at the end of 2016 were $0.275/gallon higher than at the end of 2015. Retail diesel prices averaged $2.389/gallon at the beginning of Q4, rising to $2.540/gallon by the end of the quarter, an increase of $0.151/gallon. This ending price was $0.305/gallon more than at the same time the previous year. At the beginning of the quarter, crude and product inventories appeared to be trending down at last. During the quarter, however, stockpiling of all three commodities surged once again. Crude inventories stabilized at 480 â&#x20AC;&#x201C; 490 million barrels by the end of the quarter, well above seasonal and five-year averages. Gasoline stockpiles started the quarter at 227.4 million barrels. This rose and fell during the quarter and ended roughly at the same level three weeks into December. Distillate inventories started the quarter at 157 million barrels and stood at 151.6 million barrels three weeks into December. At the end of December, large stock builds were reported, but year-end figures are often complicated by reporting and tax issues. â&#x20AC;˘

Summary, Fourth Quarter, 2016 $1.7043 $1.6651

$53.72

19,762.76

Source: New York Mercantile Exchange (NYMEX), Dow Jones Industrial Average

ÂŠ 2017 Mansfield Energy Corp

IIIII II

Global Economic Outlook

IIII II I

Oil and energy prices have fallen dramatically since 2013, but the fourth quarter of 2016 has ushered in a higher price environment for 2017. The impacts on the global economy will be mixed. The fastest economic growth rates are occurring in emerging markets and developing economies (EMDEs), but within this group, commodity exporters may fare better than commodity importers as commodity prices rise. In October, the IMF revised their 2016 global growth projection to 3.1%, down 0.1% from their previous projections, amid concerns regarding Brexit and slow growth in the United States. The organization expects growth to rebound to 3.4% in 2017, led by growing confidence in China’s near-term economic success and growth in emerging markets, which are estimated to have grown by 4.2% in 2016 after five straight years of declining rates. Global trade continues to battle against protectionist sentiments, including President Trump’s promise to withdraw from Trans-Pacific Partnership negotiations. In December, the Organization for Economic Cooperation and Development (OECD) warned that a rollback of trade liberalization efforts worldwide could reduce global GDP by as much as 2% for advanced economies in 2017. The World Bank produces quarterly data on its Energy Price Index, with the year 2010 set as 100, which tracks changes in energy costs for low- and middle-income countries. In 2013, this index was 127.4. It was cut nearly in half in 2015, falling to 64.9. The price of oil is a direct contributor to the index.

Inexpensive energy has contributed to a sharp drop in the world’s Consumer Price Index (CPI), which has been anti-inflationary. The following figure shows the close relationship between global CPI and inflation rates, as reported by the IMF. The IMF’s estimate of global inflation shows a small uptick in 2016, with inflation of 2.8% in 2015 moving up to an estimated 2.9% in 2016. The IMF forecasts that global inflation will rise to 3.3% in 2017 and beyond.

Relationship Between World Inflation Rate and World CPI

During the first quarter of 2016, WTI crude prices collapsed to the low $30/bbl range, and the Energy Price Index fell to 43. In the second quarter, WTI prices rose to the mid$40s, and the Energy Price Index rose to 55.7. In the third quarter, however, crude prices languished, which was a prime motivation behind the Algiers agreement at the end of September, where OPEC pledged to cut production. At the end of November, OPEC formalized the production cuts, and by early December, 11 non-OPEC countries joined the accord. The outlook for oil and energy prices in 2017 is now much higher than it would have been without an OPEC agreement. Around the world, governments, companies, financial houses, and international agencies are reassessing their forecasts. Most crude price forecasts for 2017 are now in the $55 – $65/bbl range. This would correspond with an Energy Price Index of roughly 70 – 85.

World Bank Energy Price Index Relative to WTI Crude Price ($/b)

Source: International Monetary Fund (IMF)

Higher energy prices may hinder economic growth in many countries, but the relationship is complex, and it is not one-for-one. Continued improvement in energy efficiency is changing the equation. Some have said that energy efficiency is the one energy resource that all countries possess in abundance. The U.S. Energy Information Administration (EIA) has completed an extensive forecasting exercise of energy intensity in countries around the globe. Energy intensity (EI) is defined as the amount of energy input required to produce a unit of GDP.

Source: World Bank and NYMEX

A key finding is that EI is falling around the globe, even amid low oil and energy prices. Even countries with relatively more energy-intensive economies have experienced a decline. For example, Canada’s economy is more energy intensive than the rest of North America because of the greater role played by oil, natural gas, and bitumen extraction and processing. Canada’s colder winters also cause high demand for electricity and heating fuels. Canadian energy intensity is nonetheless forecast to decline at 1.3% per year from 2012 – 2040.

Comparison of Energy Intensity, OECD Americas

Source: Energy Information Administration (EIA)

The EIA’s reference case forecast of energy intensity in 2016 reveals some points of note. Russian energy intensity tops the list for many of the same reasons that Canadian EI is high: a massive oil and gas industry, much of which is located in cold, or even permanently frozen, areas. South Korea’s high energy intensity is driven by a large presence of heavy industry, including refining and petrochemicals, that depends on imported fossil energy. China also has a high EI, buoyed by its massive coal and energy industry and the fact that they label themselves as “the world’s factory.”

Developed nations typically have less room for efficiency improvements compared to developing economies. For instance, China, which has been rapidly industrializing its economy, is achieving some of the greatest improvements in energy intensity. Japan, a mature and efficient economy, has achieved a low energy intensity, despite being highly developed and retaining a significant refining and petrochemical industry based on imported feedstocks. The advanced state of the Japanese economy, however, leaves it with fewer costeffective measures left to improve energy efficiency. The EIA forecasts that Japanese energy intensity will decline at an average annual rate of just 0.5% between 2012 and 2040. China, in contrast, is making huge leaps in reducing EI. The EIA forecasts that Chinese energy intensity will drop at an average rate of 2.8% per year between 2012 and 2040—one of the fastest rates in the world. At this rate, China’s EI will fall below Japan’s in the year 2033. The outlook for 2017 is one of higher energy prices. The economic impacts will vary, but a bright spot for all is the continued progress in reducing energy intensity. The industrialized OECD countries have already achieved significant improvements in their EIs, and many of those countries are in the era of diminishing returns. Still, their EIs are continuing to improve. Non-OECD Asian countries are forecast to see the largest regional decline in EI, declining at a rate of 2.4% per year between 2012 and 2040. •

A Bright Spot in the Global Economy

Reference Case Forecast of Energy Intensity, 2016

Worldwide Progress in Energy Intensity

Source: Energy Information Administration (EIA)

IIIII II

IIII II I

IIIII II

U.S. Economic Outlook

IIII II I

The U.S. economy started the fourth quarter on solid footing, and it has drawn to a close on a positive note. Optimism appears to be high at the start of a new year. The start of 2017 shares a notable similarity with 2016: recent interest rate hikes. At the start of 2016, the Fed had just raised interest rates by 25 basis points, the first hike since 2006. At that time, there were high hopes that the U.S. economy was officially past the recession and into an economic expansion phase. Two to four additional rate hikes were planned for 2016. Not until the September 2016 meeting were economic indicators strong enough for the Fed to consider a rate hike, but a divided board postponed the increase further. By the December 2016 meeting, the market-implied odds of a 25-basis-point rate hike had risen to 100%, and there was even a small probability of a 50-basis-point hike. The Fed settled on a 25-basis-point hike.

The Federal Open Market Committee (FOMC) noted in the minutes of its December meeting that, “Asset price movements as well as changes in the expected path for U.S. monetary policy beyond December appeared to be driven largely by expectations of more expansionary fiscal policy in the aftermath of U.S. elections.” The FOMC could not draw a clear picture of the possible impacts of the new administration’s policies. The December minutes state that the FOMC expects economic activity to expand at a “moderate pace.” The following figure provides U.S. GDP growth by quarter since 2007, showing the drop into recession in 2008 – 2009, and the uneven process of recovery. The recent upward revision of third quarter GDP to 3.5% has been welcome. The historical data show, however, that GDP growth rates have been unpredictable. Since the recession, quarters with growth rates of 3% – 4% have been followed by negative growth the next quarter. The Fed has taken a cautious approach to monetary policy, which appears to have borne fruit since the U.S. has achieved positive GDP growth rates for 10 successive quarters now.

U.S. Real GDP, Seasonally Adjusted Annual Rate

The U.S. economy is starting 2017 with a fresh hike in interest rates and a high degree of economic optimism. The interest rate outlook for 2017 is hawkish, with policymakers expecting two, or even three, more rate hikes. There was a small surge in home mortgage loans at the end of the quarter, likely motivated by buyers who wished to lock in low rates before 2017. Despite the exuberance, some economists hold a more cautious stance, reminding the market that the two to four interest rate hikes planned for 2016 resulted in only one. U.S. real GDP growth was a bit pallid at 0.8% in Q1 2016. It improved to 1.4% by the second quarter. In the U.S. Bureau of Economic Analysis’s (BEA’s) most recent third quarter GDP calculation, the number had risen to a strong 3.5% growth rate, reflecting higher private sector investments and consumer and government spending.

Source: Federal Reserve Economic Data and U.S. Department of Commerce

As the following figure illustrates, unemployment rates fell significantly in 2016. They remained stubbornly high from 2009 – 2014, peaking at 9.6% on average in 2010. By 2015, unemployment had levelled out around 5%. In November 2016, unemployment rates fell to 4.6%—the lowest rate achieved since 2007. The Jobs Report showed that payroll employment rose by 156,000 in December, with most of the job growth in health care and social assistance. Economists had forecast job creation of 175,000 in December, so the results were less rosy than expected.

Average Unemployment Rate, 16YO+

Consumer sentiment improved considerably in the fourth quarter. The Consumer Sentiment Index declined to 87.2 in October (down four points from September), but it jumped to 93.8 in November and then leapt again to 98.2 in December. The U.S. Census Bureau reported that retail sales in November were slightly disappointing, growing only 0.1%. Stronger numbers in September and October, however, indicate that consumer spending levels are still healthy. At the time of writing, numbers are not yet available for the December holiday season, though Kiplinger published a rosy forecast of a 4.1% increase in holiday retail sales.

Source: Bureau of Labor Statistics

Consumer Sentiment Index Q4 2016

OCT 87.2

NOV 93.8

DEC 98.2

The fourth quarter brought a slight upward movement in core measures of personal consumption expenditures (PCE), which is averaging approximately 1.79% relative to the Fed’s target of 2%. The FOMC minutes indicated that inflation will rise slowly in the medium term, close to 2% in 2017 – 2019. Low energy prices have contributed to low inflation, and as energy prices rise, consumer prices are expected to rise as well. The FOMC noted that several participants projected that inflation would exceed the FOMC’s objective in 2018 or 2019. •

Consumer Sentiment Index

Trimmed Personal Consumption Expenditures (PCE) Percentage of Change

Source: University of Michigan

The Beige Book released in November, prior to the FOMC meeting in December, stated that reports from the 12 Federal Reserve Districts indicated that national economic activity “continued to expand across most regions from early October through mid-November.” The National Economic Update from the Dallas Fed stated that, “U.S. economic indicators released in November and December have been mostly positive.”

Source: Federal Reserve Bank Dallas

Fundamentals The year 2016 marked a turning point for oil markets. By mid-year, market fundamentals in 2016 appeared to be favoring a price hike. The supply overhang was lessening, and a better supply/demand balance with $50/b prices was forecast for the end of the year. Yet inventories grew again, and prices weakened. The OPEC countries met in September to discuss market stabilization strategies, and the group went on to formalize a production cut agreement in November.

OPEC enlisted the aid of 11 non-OPEC countries in December, leading to a surge in prices (a more detailed analysis of the production cut agreement starts on page 40 of this issue of FN360). The first priority of the production cut agreement was to reduce global inventories, which place continual downward pressure on prices. If this proves successful, 2017 is expected to bring a stronger price environment. U.S. retail prices are already well above their 2015 averages. Placing their faith in the forecast of higher prices, U.S. drillers have continually raised rig counts, and domestic crude production is pulling out if its downward spiral. â&#x20AC;˘

Oil Stockpiles Continue to Burden the Market Crude Oil Stockpiles Grow, Then Stabilize

Brimming oil stockpiles continued to burden the market during the fourth quarter of 2016, both in the U.S. and around the world. In fact, increasing stockpile draws was cited as a key objective for the OPEC and non-OPEC production cuts. The presence of such overwhelming inventories places a lid on oil prices. Production cuts are intended to reduce inventories and stabilize prices at higher average levels than were seen in 2016. In the third quarter of 2016, U.S. inventories were trending down, which was interpreted as a sign that the market was moving toward a better supply/demand balance in late 2016. But the downward trend reversed, and more oil flowed into storage. Crude oil in storage, excluding the Strategic Petroleum Reserve (SPR), bottomed out at around 468 mmbbls in October. The level rose to 490 mmbbls in November and remained at approximately 486 mmbbls in December.

Source: Energy Information Administration (EIA)

Late October through early November brought three successive weeks of crude stock builds, which added 22.1 mmbbls to inventory. Despite stock draws over the following four weeks, the fourth quarter ended with net additions of 17 mmbbls to U.S. crude inventories.

U.S. Crude Inventories, Weekly Movement, mmbbls

Source: Energy Information Administration (EIA)

ÂŠ 2017 Mansfield Energy Corp

A similar pattern was seen in gasoline and diesel stockpiles. Inventories had been trending down but saw additions in the fourth quarter. U.S. gasoline inventories decreased in the third quarter and the beginning of the fourth, dropping from nearly 240 mmbbls at the beginning of July to 221 mmbbls in early November. Late November and early December, however, saw a reversal of this trend with rising inventories. Inventories were drawn down in the second half of December, bringing the end-of-quarter inventory roughly back to where it began the quarter. Inventories are now within the five-year average range for the first time since January.

which brought distillate inventories down to 148.6 mmbbls in early November. Late November and early December saw product flowing back into distillate inventories, but the quarter ended with a net drawdown of 9.1 mmbbls.

Distillate Inventories Rise and Fall in Late 2016

Gasoline Inventories Trend, Then Stabilize

Source: Energy Information Administration (EIA)

Week over week, distillate inventories were drawn down significantly for six weeks beginning in late September. The following four weeks of stockpiling and three weeks of drawdowns resulted in a graphic down-up-down pattern.

U.S. Distillate Inventories, Weekly Movement, mmbbls

Source: Energy Information Administration (EIA)

Week over week, the level of gasoline inventories had been trending down in October, but by mid-November there arrived five consecutive weeks of gasoline stock builds. The second half of December brought two stock draws, bringing gasoline inventories slightly below where they were at the start of the quarter.

U.S. Gasoline Inventories, Weekly Movement, mmbbls

Source: Energy Information Administration (EIA)

Overall, after appearing to be on a downward trend, the middle of the fourth quarter brought additional stock builds. This may be consistent with a last-moment surge in production before the OPEC and participating non-OPEC output reduction in January 2017.

Source: Energy Information Administration (EIA)

U.S. diesel inventories began the fourth quarter at 160.7 mmbbls as of the week ending September 30, 2016. Five straight weeks of inventory drawdowns followed,

Many OPEC countries expanded production to new highs in November, for example, which ignited skepticism about the sincerity of the pact to cut production. Yet there is logic to this pattern, both from the perspective of the buyer and of the seller. A seller who may not be able to sell as much in the future may seek sales revenues now, and a buyer who forecasts higher prices in the future may put additional product in inventory. â&#x20AC;˘

ÂŠ 2017 Mansfield Energy Corp

Fundamentals

U.S. Rig Count Restored, Production Poised for Resurgence Although end-of-year oil prices rose, the year 2016 will be remembered as one of low oil prices. Despite this, U.S. crude producers managed to halt the downward trend in active drilling rigs and the steep decline in U.S. crude production.

Monthly Drop in U.S. Crude Production Switches to Increase in Mid-2016

At the beginning of 2016, crude production was over 9,200 kbpd. By mid-year, it had fallen below 8,500 kbpd, with a large drop of 580 kbpd. However, the decline slowed thereafter, levelling off in the third quarter and reversing in the fourth. In December, crude production of 8,766 kbpd was around 300 kbpd higher than it was at the start of the quarter.

U.S. Crude Production: Q4 Brings a Reversal

Source: Energy Information Administration (EIA)

The possible resurgence of U.S. shale output in 2017 is now a crucial factor affecting prices. If the OPEC 11 and non-OPEC 11 manage to cut production, will U.S. producers merely move in to take up the slack? Light tight oil (LTO) producers are often viewed as global swing producers, highly sensitive to the moving parts of the supply/demand equation.

The oil price war took a massive toll on the active rig count in the United States. Last year, the active rig count fell by 62%, dropping from over 1,800 rigs at the end of 2014 to not even 700 rigs at the end of 2015. Another 230 rigs dropped out during the first quarter of 2016.

The outlook for higher prices goes hand in hand with an outlook for higher production in U.S. shale plays, which in turn can pressure prices back down. Citigroup believes an oil price of $60/b could cause 500 kbpd of growth in U.S. shale output, and a price of $70/b could cause one million barrels per day of growth.

The declining rig count bottomed out at 404 active rigs at the end of May. Since then, oil rigs have slowly and steadily been tempted back into the field. At the start of Q4, there were over 500 active rigs, and by the end of the 2016, there were 658—nearly as many as there were at the beginning of the year.

U.S. Rig Count Has Fallen, but Productivity Has Risen

U.S. Active Rig Count: Q4 Restoration

Source: Energy Information Administration (EIA) and Baker Hughes

Source: Baker Hughes

It remains possible for U.S. crude production to continue its decline, but the outlook for a closer balance between supply and demand in 2017 is already resulting in a higher rig count and a reversal of the production decline. During the first half of 2016, U.S. crude production on average declined every month. The second half of the year brought a remarkable turnaround, with production increases on average every month.

Even if prices do not reach $60 – $70/b, some production growth could still occur. As the U.S. rig count declined between 2013 and 2016, the remaining rigs grew increasingly efficient. During the 2011 – 2014 period, the rig count was in the 1,100 – 1,200 range. It crashed to just 319 in 2016. The average output per rig, however, grew by over 500%, from 116 barrels per day in 2011 to 622 barrels per day in 2016. The first wave of rigs that have been coming back into operation have done so with an expectation of prices in the vicinity of only $50/b. With WTI forward curves now pointing to $54 – $57/b in 2017, it remains to be seen whether a shale revival can pace itself to not erode prices. •

Fundamentals

Retail Prices Surge Above Last Year’s Levels Gasoline and diesel at the pump began 2016 as a great bargain, but they ended at levels well above the start of the year. The following figure shows the change in U.S. retail gasoline prices at the end of 2016, relative to the end of 2015. In all PADDs outside of PADD 5 (West Coast), prices soared above last year’s prices.

On a national level, gasoline prices jumped 27.5 cents/gallon above where they were a year ago. Prices in PADD 1 East Coast were 29.8 cents/gallon higher. The Midwest PADD 2 market experienced the largest price hike at 40.7 cents/gallon. PADD 3 Gulf Coast prices rose 32 cents/gallon. PADD 4 Rocky Mountains prices rose 20.3 cents/gallon. In the PADD 5 West Coast market, gasoline prices were 3.8 cents/gallon lower, a reflection of the relative isolation of the PADD 5 market. At the end of 2015, PADD 5

gasoline prices surged 62.9 cents/gallon above the U.S. average. PADD 5 prices remain the highest in the country, but at the end of 2016, the PADD 5 price premium shrunk to only 28.3 cents/gallon above the U.S. average price.

Over the course of 2016, the average gasoline price at the pump rose 27.5 cents. When crude prices fell, product prices followed. At the end of 2013, gasoline retail prices averaged $3.33/gallon. They fell to $2.30/gallon at the end of 2014, and they declined further to $2.03/gallon at the end of 2015. Motorists became accustomed to seeing gasoline prices below $2.00/gallon at many retail outlets, especially in the U.S. Gulf Coast market. By the end of 2016, U.S. retail gasoline prices had climbed back to $2.30/gallon, and sub-$2.00 gasoline now appears to be a thing of the past once again.

2016 Retail Gasoline Prices Surge: Prices End-2016 vs. End-2015 ($/gal)

U.S. Average Retail Gasoline Price End-of-Year 2013 – 2016 ($/gal)

Source: Energy Information Administration (EIA)

Fundamentals

At the national level, diesel retail prices surged 30.5 cents/gallon higher at the end of 2016 relative to prices at the end of 2015. Prices rose the most in PADD 5 (34 cents/gallon higher) and PADD 2 (32.6 cents/gallon higher). In the East Coast PADD 1, the Gulf Coast PADD 3, and the Rocky Mountains PADD 4, diesel prices at the end of 2016 rose by approximately 29 cents/gallon relative to the end of 2015.

U.S. diesel prices were $3.90/gallon at the end of 2013. They collapsed to $3.21/gallon at the end of 2014 and $2.24/gallon at the end of 2015. Oil prices have strengthened recently, and diesel prices rose to an average of $2.54/gallon at the end of 2016. •

Diesel Retail Prices in 2016 Surged Above 2015 Prices ($/gal)

U.S. Average Retail Diesel Prices End-of-Year 2013 – 2016 ($/gal)

Source: Energy Information Administration (EIA) Source: Energy Information Administration (EIA)

PADD 1

East Coast PADD1A

Regional Views BEAR B

Northeast

Andy’s Answer I

Andy Milton, Senior VP of Supply & Distribution See his bio, page 52

With all the big news events, including OPEC actually agreeing on something, Trump’s record-setting tweeting, and the cold weather, this forecast might be a bit shaky! We haven’t had a good cold spell in a while, so we are due. Fortunately, there are plenty of extra assets in the markets to help curb any misalignment in supply and demand. Local fundamentals will do little to inspire prices to go higher, given existing high inventory levels and low demand trends. NY Harbor basis has remained in the negatives throughout the quarter, with a steep drop-off in early December, indicating that the region remains long on product and is trading at a discount to prompt month NYMEX prices.

PADD 1A Wholesale vs. DOE Retail Diesel (dollars per gallon) “NY Harbor basis has

remained in the negatives throughout the quarter, with a steep drop-off in early December, indicating that the region remains long on product and is trading at a discount to prompt month NYMEX prices.“

Source: Energy Information Administration (EIA)

Q4 NY Harbor Basis

Source: New York Mercantile Exchange (NYMEX)

Regardless of the fundamentals, the market wants to be higher, and with such mega-market movers as OPEC, Trump, and cold weather, why wouldn’t it? Despite a higher overall market, expect PADD 1A prices to remain weaker than NYMEX prices. Entering into 2017, prices may experience some dips before the peaks, and a complete turnaround in policies is bound to shake things up a bit. Tweet that! •

Regional Views

Monroe Energy Selling Wholesale Fuels in the Northeast Monroe Energy, a Delta subsidiary, plans on marketing gasoline, diesel, and bio blends produced from their Trainer Refinery starting in the first quarter of 2017. Sunoco Logistics’ Twin Oaks location in Pennsylvania will be the initial position. This plan will add new supply to the market, in addition to the offtake deal signed with Phillips 66 when Monroe acquired the refinery from them in 2012. Whether the entire offtake agreement is up for change is currently unclear. The change appears to be a response to the EPA’s decision to deny changing the point

PADD 1 Distillate Fuel Inventories Are Going Up!

of obligation as it pertains to RINs and the obligated party. Current policy is dictated by the Renewable Fuels Standard, which requires that refiners buy and retire RINs as a way to offset their carbon emissions. Currently, RINs are created by renewable fuel producers and separated from the physical product by blenders, who blend the renewable fuel with refined fuels at the rack. Monroe’s move allows them to generate RINs by blending at the rack, which they can then use to supply their refining segment’s RIN requirements. •

U.S. Total End-of-Month Distillate Fuel Inventories

The National Oceanic and Atmospheric Administration (NOAA) called for this winter to be colder than last year. Despite PADD 1 refinery production of distillate fuel being somewhat lower than average, there appears to be ample import abilities to supply the Northeast. Distillate stocks throughout the U.S. are forecast to fall back below their five-year range, but there should still be plenty of supply to meet the cold weather. Imports from Canada will be the main driver of new supply in the Northeast, while imports from Europe and the Gulf Coast are possible as arbitrages open and close. •

Source: Energy Information Administration (EIA)

PADD 1

East Coast PADD1B & 1C

Central & Lower Atlantic

Regional Views

BULL

Chris’s Concept I

Chris Carter, Supply Manager See his bio, page 52

As we enter 2017, I’m bullish for both diesel and gasoline in the first quarter of the year. Depending on the weather forecast you read for the East Coast, you may expect either a mild or an extremely cold winter. I predict a cooler-than-normal winter for the East Coast. As a result, the opportunity to move Gulf Coast product to the Northeast will continue into early March, leaving the Southeast markets with tighter ULSD supply. Florida will continue to experience tight supply in 2016, though not as bad as in 2013 or 2014 when supply constraints pushed regional prices over 30 cents higher than normal. Low supply in the Southeast will be caused by exports and the opportunity to move vessels into NY Harbor, bypassing the Gulf.

“Depending on the

weather forecast you read for the East Coast, you may expect either a mild or an extremely cold winter. I predict a coolerthan-normal winter for the East Coast.

“

PADD 1B Wholesale vs. DOE Retail Diesel (dollars per gallon)

Source: Energy Information Administration (EIA)

PADD 1C Wholesale vs. DOE Retail Diesel (dollars per gallon)

Source: Energy Information Administration (EIA)

Regional Views

Hurricane Matthew In late September, a wave emerged off the coast of Africa, which travelled across the Atlantic and formed a tropical storm as it crossed the Caribbean Sea. On September 29, this tropical storm became Hurricane Matthew. By October 3, the storm had situated itself to make landfall in the contiguous U.S., having left a trail of destruction throughout the Caribbean islands.

Courtesy, CNN

Although the storm never made landfall, the heavy rains and winds caused catastrophic damage to the Florida coast. Anticipation of outages caused gas prices to rise, but prices quickly returned to normal after the storm passed. This trend continued as the storm moved up the coast, causing flooding and severe wind through Georgia and the Carolinas.

Source: The Weather Channel

Both Florida and South Carolina declared a state of emergency, and some counties in Georgia and North Carolina did the same. Nikki Haley, Governor of South Carolina, ordered an evacuation of several coastal communities in advance of the storm, leading to a rush of individuals refueling their vehicles for the trip. Personal demand, coupled with increased business demand to top off tanks, severely decreased available supply across the coast. The eastern coast of Florida was most heavily impacted.

The trail of destruction left by the storm was devastating. More than 1,000 people lost their lives in Haiti alone, and 44 deaths were recorded in the United States. Tens of thousands of individuals were forced to evacuate, only to return and find their homes had been destroyed. Fortunately for fuel consumers in Florida, East Coast port terminals have been the benefactors to new Jones Act vessels (vessels commissioned and built entirely in the U.S.) coming online. Had the situation unfolded in 2014, the recovery time would have been even longer. However, given the timing and path of Hurricane Matthew, suppliers had enough time to plan for and prevent major supply outages. â&#x20AC;˘

Colonial Explosion (The Sequel) Line 2 was briefly shut down as a precaution, but was promptly restarted the same day, minimizing disruptions for diesel. The fire on Line 1 was allowed to continue burning as a precaution, preventing leaks into the surrounding areas, including the Cahaba River, which is home to multiple protected species.

The fourth quarter of 2016 saw yet another Colonial Pipeline outage. Colonial, which supplies 100 million gallons of refined products to the Eastern Seaboard each day, experienced an explosion on October 31. A crew of contractors operating for Colonial accidentally struck Line 1 with a backhoe, causing the blast. The resulting explosion ignited the gasoline within the pipeline.

The fire was eventually extinguished on November 4, and repair work began. Colonial crews removed the impaired section and replaced it with a new segment, allowing Line 1 to be restarted on Sunday, November 6. The explosion led to an aggressive jump in NYMEX December RBOB futures, with prices rising as much as 15 cents higher than the close the evening of the incident. Colonial quickly announced a timeline for repairing the pipe to reassure marketers. The price spike lingered in the days following the announcement, as some doubt remained about the accuracy of the timeline given for the reopening of the pipeline. The reassurance from Colonial post-explosion led to uneven market effects in regions from Mississippi to Maryland. Several suppliers shut off their product allocation or raised prices at the rack to ensure future availability. Many supply contracts in the Southeast experienced reduced allocation availability. These changes led to an inflated wholesale and spot market in certain locations as security of supply became a concern. To prevent customers running out of fuel, trucks had to long-haul fuel from markets unaffected by the explosion. Gas was trucked into the affected areas from markets farther inland, as well as from barge-fed markets such as Charleston, South Carolina, and Wilmington, North Carolina. Trucks also reportedly brought supply from Texas- and Chicago-fed markets to meet demand during the outage. â&#x20AC;˘

ÂŠ 2017 Mansfield Energy Corp

PADD 2 Midwest

Regional Views

BEAR

Dan’s Dissertation I

Dan Luther, Senior Supply Manager See his bio, page 52

To start the first quarter of 2017, expect weak diesel and gasoline values in the Midwest. Seasonal demand is at its lowest point this time of year, and refinery production should remain consistent. However, the upcoming winter months are expected to be colder than last year, so weather-related production issues are possible. By the end of the quarter, I expect Midwest diesel and gasoline prices to be higher relative to NYMEX futures as demand begins to pick up coming out of the winter season, and some production comes offline for spring refinery maintenance.

“ I expect Midwest diesel and gasoline

prices to be higher relative to NYMEX futures as demand begins to pick up coming out of the winter season, and some production comes offline for spring refinery maintenance.“

PADD 2 Wholesale vs. DOE Retail Diesel (dollars per gallon)

Source: Energy Information Administration (EIA)

Midwest Diesel Prices Unseasonably Weak on Ballooning Inventory

PADD 2 Distillate Inventory

During the fourth quarter, bulk diesel at Midwest production hubs traded at unseasonably weak levels relative to NYMEX futures. PADD 2 typically experiences a tight diesel market in the fall as demand spikes with harvest and supply drops as refiners take production units offline for seasonal maintenance. However, this year a relatively minimal amount of planned refining capacity was taken offline and there were few unplanned production hiccups. Higher, more consistent production levels coupled with average demand translated to unseasonably high inventory levels.

Source: Energy Information Administration (EIA)

As a result, diesel prices in the Chicago and Group 3 trading hubs were the cheapest in the country for most of the quarter. High inventory and low regional prices have meant poor margins for refiners for much of this year. Looking ahead to the first quarter, some producers are considering voluntary production cuts, which may, in turn, reduce inventories and raise prices relative to futures. •

Regional Views

Buckeye Proceeds with Pipeline Reversal Buckeye Pipe Line Company confirmed successful commitments from shippers for the second phase of their Michigan/Ohio Pipeline Expansion Project. Once complete, this stage of the project will allow Buckeye to offer transportation of refined products from origin points in the Detroit area and throughout Ohio, moving east to the Altoona area in central Pennsylvania. Buckeye will reverse a portion of their Laurel Pipeline to move west to east from Pittsburgh to Altoona. Currently, the Laurel line flows the opposite direction—east to west—originating in Philadelphia.

Source: Buckeye Partners, L.P.

The shipper commitments exemplify the evolving market conditions supporting Midwest product movements west to east into markets that were once supplied by New York Harbor area refineries. Refining capacity in Chicago and throughout the Great Lakes area continues to exceed demand, leading those producers to find new destinations for their products. The first phase of this same project offered expanded transportation from Great Lakes origin points into Pittsburgh, which historically had only been supplied by pipelines from East Coast refineries.

Since the East Coast does not have enough refining capacity to meet demand, they must import products from other regions of the U.S. or from other countries. Facilitating flow from the Great Lakes into the East Coast should help lighten supply issues often experienced in the Northeast. The second phase of the project is projected to be completed before the end of 2018. •

PADD 3 Gulf Coast

Regional Views

BEAR B

Dan’s Dissertation I

Dan Luther, Senior Supply Manager See his bio, page 52

Heading into 2017, PADD 3 gasoline inventories stand well above multi-year seasonal highs, with regional diesel inventories also approaching high marks not typically seen this time of year. With Midwest and East Coast markets expected to be well supplied during the beginning of 2017, excess product should cause diesel and gasoline values to remain weak to start the year.

PADD 3 Wholesale vs. DOE Retail Diesel

(dollars per gallon)

“ With Midwest and East

Coast markets expected to be well supplied during the beginning of 2017, excess product should cause diesel and gasoline values to remain weak to start the year.“

Source: Energy Information Administration (EIA)

West Texas Netbacks Jump on Supply Issues Fuel buyers in Odessa and El Paso, Texas, experienced rising diesel prices in November. A confluence of product quality, pipeline service, and refinery concerns led to the spike. Initially, off-spec diesel was found in Magellan’s Odessa terminal, resulting in downtime at the terminal and removal of the quarantined product. Next, during routine maintenance, Magellan discovered some anomalies in their line running from east Houston to Frost in central Texas. As they investigated the issue, shipments from the Gulf were limited. Then, in midNovember, Western Refining experienced unplanned downtime at their El Paso refinery—the area’s largest—and shut down one of two crude units at the plant.

Regional Views

West Texas Diesel Netbacks Given the limited supply options in West Texas (Magellan is the only pipeline serving those markets) and downtime at the area’s biggest refinery, the local market saw netbacks—the difference between Gulf Coast cash prices and local rack prices—jump upward. In El Paso, diesel prices surged more than 20 cents per gallon, while Odessa prices rose by nearly 15 cents at their peak. Buyers began to see supply improve in mid-December as Western Refining’s unplanned issues were resolved. Heading into the new year, assuming no unplanned issues arise, diesel pricing should remain at normal seasonal levels through Q1. •

Oil Price Information Service (OPIS)

Tesoro to Buy Western Refining in Multi-Billion Dollar Deal

In mid-November, Tesoro announced the purchase of Western Refining for $4.1 billion, adding refineries in Texas, New Mexico, and Minnesota. The combined company will have production capacity of almost 1.1 MMbpd, making the new entity the fifth largest U.S. refiner behind Valero, ExxonMobil, Marathon, and Phillips 66. Prior to the acquisition, Tesoro had refineries located in California, Washington, Alaska, Utah, and North Dakota.

Consolidation in the refining industry is not unexpected. This year has been particularly difficult on independent U.S. refiners as margins have collapsed. The refinery margin benchmark, WTI 3-2-1 crack spreads, has fallen below $12 per barrel from a peak of more than $30 a barrel in early 2015. Lower margins have caused some producers to cut production, delay capital work, and, in some instances, lay off workers. Different refiners have unique ways of going to market with their product, so with industry consolidation comes temporary uncertainty regarding supply. •

Regional Views

PADD 4 Rocky Mountains

“Prices ended 2016 on a

high note, so it will be interesting to see if a correction takes place in Q1 to offset some of the counter-seasonal gains experienced to close out December.“

BULL

Nate’s Notion I

Nate Kovacevich, Senior Supply Manager See his bio, page 52

In the third quarter, PADD 4 prices swung from the highest in the nation to some of the lowest. PADD 4 and West Coast gasoline prices were the only regions to have fallen during Q4, as OPEC production quotas caused worldwide prices to rise. Winter demand for refined products is typically lower than the rest of the year, and colder-than-average temperatures are lowering transportation demand enough to force refineries to drop prices to move refined product. Every other region has moved higher in response to OPEC’s decision to reduce output. Diesel prices in PADD 4 have also moved lower, relative to the national average.

Retail diesel and gasoline prices should start to move higher in the Rocky Mountain region toward the end of Q1. From a seasonal standpoint, an uptick in demand is common as winter draws to an end and spring begins. Prices ended 2016 on a high note, so it will be interesting to see if a correction takes place in Q1 to offset some of the counter-seasonal gains experienced to close out December. If we do see any weakness, I would anticipate it would be in the first six weeks of the quarter, but I believe a sideways trade is more likely to start the new year, with a push higher in the final weeks of the quarter.

PADD 4 Wholesale vs. DOE Retail Diesel

(dollars per gallon)

Source: Energy Information Administration (EIA)

PADD 4 Gasoline Retail Prices vs. U.S. Average Prices

Source: Energy Information Administration (EIA)

PADD 4 ULSD Retail Prices vs. U.S. Average Prices

Source: Energy Information Administration (EIA)

Utah Draws All Eyes

Utah’s gasoline prices have gained national attention as they moved lower throughout November, even while the rest of the country’s gas prices moved higher. Utah’s December average price of $2.18 per gallon, while only 3 cents cheaper than the national average, was down 17 cents from the previous month, compared to a 4-cent increase in the national average during this period. The move lower is not a total surprise—prices typically drop this time of year—but the difference compared to national averages is striking. •

BP’s Lower 48 Operations Moving to Denver

Image: TRYBA Architects

Jobs are starting to move back into Denver, nearly three decades after oil and gas firms left the area in a mass exodus due to collapsing energy markets. Now, BP is making a move back into Colorado, bringing 200 jobs from the company’s Lower 48 operations that are currently headquartered in Houston. The move is a clear sign that the industry sees the Rocky Mountain region as a potential energy hub in the future. “In some ways, this is a homecoming for us,” David Lawler, CEO of BP’s Lower 48, said in a statement. “With two-thirds of our operated oil and natural gas production and proven reserves in the Rockies, world-

class universities nearby, and a wealth of industry expertise in the region, Denver is a logical—and strategic—place for us to be, and a natural fit for our business.” BP’s Lower 48 produces natural gas, oil, condensate, and gas liquids across the Rocky Mountain region, as well as in New Mexico, Texas, and Oklahoma. Last year, it produced an average of 300,000 barrels of oil equivalent per day. With the recent uptick in oil prices, upstream activity is likely to pick up throughout PADD 4. With the relocation of its Lower 48 operations, BP is making a clear commitment to the region and the energy industry in the Rocky Mountains. •

Regional Views

PADD 5

West Coast, AK, & HI

BULL

Amy’s Analysis I

Amy Nguyen, Supply Optimization Supervisor See her bio, page 52

With OPEC’s announcement causing prices to surge worldwide, fuel prices in the U.S. have risen to follow the global trend. Despite the rise in prices throughout the country, fuel prices in California actually declined. California’s gas price per gallon within the first week of December ($2.66) was lower than it was before the OPEC deal. Diesel fuel prices shed six-tenths of a cent over the same span. These minor drops were mainly attributed to the abundant supply in the region, which could increase even more. BP’s Olympic Pipeline in the Pacific Northwest, as well as some refineries in California, such as Chevron’s Richmond refinery, completed seasonal and scheduled maintenance over the past quarter and are now back up and running.

“ With OPEC’s

announcement causing prices to surge worldwide, fuel prices in the U.S. have risen to follow the global trend.“

PADD 5 Wholesale vs. DOE Retail Diesel (dollars per gallon)

Source: Energy Information Administration (EIA)

Gasoline Retail Average Price—California vs. U.S. Despite the slight decline in gas prices, California still has one of the highest average gas prices in the country, along with a number of other West Coast states, including Washington, Alaska, and Oregon. However, following the non-OPEC decision to cut production, oil prices have jumped well over $50 a barrel and the national gas average rose to $2.21 per gallon. California has yet to see the drastic spikes, but I do expect gas prices to follow suit with the rest of the country and increase. Despite the abundant supply in the region, demand is just as high. As California is one of the largest gasoline consumers in the world, demand will eventually catch up to the supply, especially once the production cuts come into effect. Oil has rallied and prices have increased after the previous OPEC production cut deals, and I predict the trend will continue and refined fuel prices will be even higher in 2017. •

Source: Energy Information Administration (EIA)

31 28

Regional Views

Offshore Drilling Ban

November was a busy month for oil deals and policies. In addition to OPEC announcing production cuts, President Obama and his administration also released a plan that bans any new offshore drilling off the coasts of California, Oregon, and Washington, and any drilling in the Arctic. This comes on the heels of the climate and clean energy bill that was signed into law in late September by California Governor Jerry Brown. These initiatives further emphasize the government’s efforts to focus on environmental protection within the region and throughout the country. The five-year plan outlines which offshore areas will be open for leasing by oil companies from 2017 – 2022. The rule prohibits any drilling in the Beaufort and Chukchi Seas, and it also blocks expansion in the Atlantic and Pacific Oceans. However, the plan does allow some new leasing in the Gulf of Mexico. California is the nation’s third largest oil producing state and has 32 offshore platforms in which oil is produced. These are all located in Southern California, where no new drilling sites will come about for at least the next five years.

The rule has drawn heated debates among multiple groups. Conservationists believe President Obama’s actions will protect the coastal communities, while the oil industry and Republicans fear this could cause energy dependencies on other oil producing countries. President Trump has vowed to expand offshore oil and gas drilling, but the Obama administration’s plan went into effect before Trump’s inauguration, and, unlike an executive order, any attempt to revoke the plan would require lengthy litigation. The deal only bans new drilling; it does not affect current drilling operations. Therefore, the rule should not have any immediate impact on West Coast supply, but this certainly doesn’t help create more oil supply in the long run. Because Californian fuel must meet stricter specifications than the rest of the country, the West Coast cannot easily import fuel from other regions of the United States. As such, Obama’s actions to limit the area’s drilling and local production may lead to more severe disruptions down the road. With supply already tight due to OPEC production cuts, I expect this to raise fuel prices in the coming months as suppliers hoard resources to sell at a higher price down the road. •

Canada

Regional Views

Nate Kovacevich, Senior Supply Manager I See his bio, page 52

Will Trump’s Cabinet Nominations Revive the Keystone Pipeline?

Canada’s energy markets appear to be primed for a renaissance in the years to come as their neighbors to the south seem to be moving in an oil-friendly direction. President Trump nominated ExxonMobil CEO Rex Tillerson to head the State Department and former Texas Governor Rick Perry to head the U.S. Energy Department. Both nominees have been supportive of Canadian oil and gas. In fact, Rick Perry was a key supporter of the Keystone XL pipeline, which would connect Alberta oil sands to the Texas refining hub in Houston. He wrote an op-ed piece on the subject in 2012, which said that the XL pipeline “provided a shot in the arm for our nation’s uncertain economy, and it could have provided economic opportunity for tens of thousands of families, stretching from here in Texas all the way to the Canadian border.”

Canada has been pushing hard for a national carbon price to achieve greenhouse gas reductions. While the controversial nominations by the new U.S. president have the potential to reignite the Keystone pipeline discussion and help foster an increase in oil imports from Canada to the U.S., they also have the potential to distance the U.S. from Canada as it relates to climate plans put forward by Alberta and the Canadian government. The challenge of carbon pricing in Canada is that it will make U.S. oil and gas supplies much more competitive compared to Canadian supplies, which could lead to tensions between the two countries. It will be interesting to see what happens, as the political landscape has shifted dramatically in the last couple of months. •

Regional Views

Alberta Government Introduces Carbon Levy Starting January 1, 2017 On January 1, the Alberta government introduced a new carbon levy that will be applied to fuels that emit greenhouse gases when combusted, including transportation and heating fuels such as diesel, gasoline, aviation fuels, natural gas, and propane. The carbon levy will be applied to fuels at a rate of $20/tonne (CO2e), increasing to $30/tonne (CO2e) on January 1, 2018. The following table shows how this carbon levy will impact each product that emits greenhouse gases. The levy is designed to get people to lower their carbon emissions by putting a price on carbon. According to a survey conducted by the Citizen Society Research Lab at Lethbridge College, 67.2% of voting age Albertans oppose the carbon levy. However, opinions could change as people in the province learn more about the rebate program that will be associated with the carbon levy program. Once rebates are included into the analysis, estimates point to an extra $540 for the average family of four. â&#x20AC;˘

Carbon Tax Rate

Fuel Type

January 1, 2017

January 1, 2018

Gasoline (cents per liter)

4.49

6.73

Diesel (cents per liter)

5.35

8.03

Aviation (cents per liter)

5.17

7.75

Propane (cents per liter)

3.08

4.62

Natural Gas ($/GJ)

1.011

1.517

ÂŠ 2017 Mansfield Energy Corp

Alternative Fuels

Renewable Fuels B “ The lack of financial

support provided by the tax incentive, as well as the uncertainty regarding the future of the credit and if it will be reinstated retroactively, has slowed down the pace of transactions for 2017.“

BEAR

Sara’s Sentiments I

Sara Bonario, Supply Director See her bio, page 52

The United States Senate adjourned on December 9, 2016, bringing the 114th Congress to a close without renewing the $1.00/gallon biodiesel blender’s tax credit (BTC) that expired on December 31, 2016. The lack of financial support provided by the tax incentive, as well as the uncertainty regarding the future of the credit and if it will be reinstated retroactively, has slowed down the pace of transactions for 2017. Coastal markets seem to be the only viable option for the first quarter of 2017, with blenders looking for 2016 carryover gallons eligible for the $1.00/gallon blender’s tax credit. Midwest blending economics are challenged, with sellers offering close to the market ULSD rate on a RIN-less basis, promising a 50/50 share of the tax credit for 2017 should it be reinstated. Expect the higher cost of biodiesel to continue in the first quarter of the year, as producers facing negative production economics slow down rates while trying to push incremental costs on to the consumer. Blenders and end users are expected to postpone additional capital investment in infrastructure improvements, such as in-line blending facilities and incremental storage for biofuels.

Do Fossil Fuels Hold the Trump Card?

Just as the balloons and confetti of election night began to settle, groups on both sides of the Renewable Fuel Standard (RFS) debate began to postulate what a Trump presidency would look like with regards to energy policy in the United States. Markets across the globe reacted negatively to the election of Donald Trump as the 45th President of the United States, with the 2016 Biodiesel (D4) RIN price being no exception. After the initial shock of the U.S. presidential election result, investors seem to believe that a Trump administration could be good news for U.S. businesses and fossil fuels in particular. According to ESAI Energy, “A Trump presidency that is pro-business will encourage oil development, permit pipelines, and reduce corporate profit taxes and generally make U.S. oil more competitive. This is a distinct departure from the anticipated climate-friendly Obama-Clinton policies.” The November 23, 2016, announcement of the Renewable Volume Obligation (RVO) figures for 2017 sent the RIN market on an upward trajectory, as participants responded to the news by bidding up both biodiesel and ethanol RINs (see chart). The EPA finalized 2017 levels at 19.28 billion gallons, higher than previously proposed but lower than statutory volume of 24.0 billion envisioned by Congress.

Renewable Fuel Volume Requirements for 2014 – 2018 2014

2015

2016

2017

2018

123

230

311

n/a

Biomass-based diesel (billion gallons)

1.63

1.73

1.90

2.00

2.10

Advanced biofuel (billion gallons)

2.67

2.88

3.61

4.28

n/a

16.28

16.93

18.11 19.28

n/a

Cellulosic biofuel (million gallons)

Renewable fuel (billion gallons)

Source: Environmental Protection Agency (EPA)

Alternative Fuels

OPIS D4 Bio RINS Value

In early December, then President-elect Donald Trump was quoted as saying the administration he is putting together “will cancel job-killing restrictions on the production of American energy.” Consistent with this message, and to the dismay of many who support renewable fuels, Trump selected Oklahoma Attorney General Scott Pruitt as the head of the EPA. While most mainstream newspapers have highlighted Pruitt’s aversion to climate change and his battles with the EPA, traders of biofuel are worried that he will remove some of the incentives for using ethanol, citing his problems with ethanol and strong ties to the fossil fuels business. After the news of Pruitt’s selection, RIN markets cratered, reaching a three-week low on Friday, December 9. D4 RINs shed roughly 18% of their value over the course of five trading days (see chart).

Source: Oil Price Information Administration (OPIS)

On December 14, the Federal Reserve revealed interest rates would rise by 25 bps, the first increase since December 2015, sending the U.S. dollar higher and energy prices (including RINs) lower, providing a buy opportunity for refiners and obligated parties. Refiner support allowed the RIN market to edge higher, only to react once again to an announcement from Trump. On December 21, Carl Icahn was named Special Adviser on Regulatory Overhaul, in charge of screening candidates applying to head the EPA. After the news, RIN bid interest was scarce, and the D4 RIN value moved 7 cents per gallon lower. Just after the close of the year, on January 4, 2017, the longstanding RFS2 critic Carl Icahn was officially named as an administrative advisor. •

Alternative Fuels

Natural Gas “ While heating degree days

(HDDs) were down through the early months of Q4, current weather models show colder-than-typical forecasts prevailing for much of the country as we cross calendar years.“

BULL

Martin’s Musing I

Martin Trotter, Pricing & Structuring Analyst See his bio, page 52

After ballooning to over $3.15 per dekatherm in October to open Q4, natural gas cash prices found their bottom at $2.015 in mid-November as unseasonably warm temperatures lingered later than usual, thwarting demand and pushing additional stock into already burgeoning storage inventories. Leading up to Thanksgiving, forecasts for colder-than-usual temperatures across most of the U.S. caused cash prices to jump, closing over a dollar higher by the month’s end. Expect natural gas prices to rise heading into the traditionally demand-heavy months of Q1. While heating degree days (HDDs) were down through the early months of Q4, current weather models show colder-than-typical forecasts prevailing for much of the country as we cross calendar years. We expect climbing prices to start the year due to increased seasonal demand on the heels of significant storage withdrawals, as well as additional demand for exports into Mexico and natural gas-fired power generation plants.

Forward Prices

Q4 2016 NYMEX Calendar Year Average Price Strips

The volatility that calendar year 2017 average prices experienced in previous quarters continued throughout the fourth quarter, as the approaching new year caused contracts to become increasingly sensitive to market conditions. After gaining nearly 30 cents through the beginning of October and falling during a warmer November, prices bounced back again as shots of colder weather in December pushed prices as high as $3.51. Calendar year 2018 traded within a much tighter band, ranging between $2.89 and $3.11. The average 2019 price failed to hit the $3.00 mark during the quarter, while calendar year 2020 prices rose just barely above this level in late December. •

U.S. Natural Gas Exports (2009 – 2016) LNG exports Pipeline exports to Canada Pipeline exports to Mexico

Supply

Source: New York Mercantile Exchange (NYMEX)

U.S. Becomes Net Exporter for First Time in 60 Years

Late November marked a milestone for the U.S. in the global energy landscape. For the first time in 60 years, the country exported more natural gas than it brought in. Major players in the 50% growth of natural gas exports since 2010 include North American Free Trade Agreement partners Canada and Mexico.

Source: Energy Information Administration (EIA)

While Canada’s demand has remained steady, exports to Mexico have skyrocketed since the 2013 legalization of private investment in Mexico’s electricity. Increased investment in Mexico’s power and electricity infrastructure has demanded additional usage in natural gas, causing many U.S. producers to supply affordable gas across the border. Many transmission companies are investing in additional pipelines and interconnects to further engrain U.S. exports into Mexico. Current projections call for continued growth in exports to Mexico, but uncertainty regarding the future fate of NAFTA brings into question how much companies will continue to invest, and at what cost. •

Alternative Fuels

Natural Gas

Natural Gas Fundamentals

Demand

A key indicator of end-user demand through winter seasons is heating degree days. An HDD represents the number of degrees, and for how many days, the outside air temperature is below a certain level. Commonly using 65 degrees Fahrenheit as a baseline, HDDs measure the severity of colder weather over a given time and how much energy will be required to heat a building. Compared to 10-year monthly averages, Q4 2016 saw 24% fewer HDDs in the month of October and 21% fewer HDDs in November. Lack of demand through October and the first half November, coupled with burgeoning storage inventories, dragged prices down in both the spot and futures markets. Mid-December saw a cold blast and increased demand for heat. As a result, HDDs for the final month of the quarter came in ahead of the average by nearly 11%. •

U.S. Winter Heating Degree Days

Source: Energy Information Administration (EIA) Short-Term Energy Outlook, December 2016

U.S. Working Natural Gas in Storage

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

Storage

A 52-month outlook done in November showed inventories surpassed previous five-year averages in 48 out of the previous 52 weeks. Mounting inventories, coupled with stunted demand through October and into November, caused working storage to rise to over 4.047 Tcf, surpassing the previous November 2015 record of 4.09. Early December caused an abrupt change of course, however, as pockets of cold weather resulted in substantial withdraws from inventory. Demand for December saw a run on storage to the tune of 690 Bcf. The first full week of the month required withdrawals that—for the first time in two years—caused current year storage to fall behind the previous year’s total. The next two weeks met arctic blasts with withdrawals north of 200 Bcf before falling vastly below expectations for the last week of the quarter. •

Alternative Fuels

Power BULL

“ Even during colder

weather in midDecember when high temperatures dropped below freezing, peak power prices at PJM West held in the mid$30/MWh range.“

Keith’s Conjecture I

Keith Crunk, Power & Gas Supply Manager See his bio, page 52

Power Prices

Cash

As is frequently the case during the fourth quarter, temperatures have fluctuated significantly since the beginning of October. Cash peak power prices, however, have not followed suit. Price volatility has been kept to a minimum, particularly at PJM West Hub, one of the most liquid trading points in the nation and part of the largest ISO/RTO in the country.

Though the first half of Q4 saw several days with temperatures in the mid-to-upper 70s in the Mid-Atlantic region, cash power

Forward/Term

prices at PJM West Hub remained between $30/MWh and $40/MWh, with the exception of a five-day period in midOctober when prices cleared at $50/MWh. Even during colder weather in mid-December when high temperatures dropped below freezing, peak power prices at PJM West held in the mid-$30/MWh range. On the other hand, the colder weather did affect Massachusetts Hub, as recent prices have spiked above $70/MWh.

Calendar Year 2017 Wholesale Peak Power Prices

As opposed to the minor fluctuations in cash power price, forward power curves showed more volatility during the course of Q4. One of the most volatile regions has been NYISO Zone J, which saw calendar year 2017 forward prices drop 10% by mid-quarter before regaining that drop by quarter’s end. NYISO Zone J is not only located in the colder northern region of the country, it encompasses New York City, an extremely high-demand area, adding volatility to the price. Other markets’ forward curves also saw little change between their beginning and ending prices, but experienced less volatility than New York. Such similarities between beginning- and end-of-quarter prices are a change from Q2 and Q3, which saw a significant increase in forward prices and a significant decrease, respectively. • Source: Platts

Alternative Fuels

Power Supply

Power Fundamentals

Hurricane Matthew Disrupts Millions of Customers, Causes Nuclear Plant Shutdowns

Estimated Electricity Outages Caused by Hurricane Matthew (Oct 7 – Oct 13, 2016)

Source: Energy Information Administration (EIA), compiled from U.S. Department of Energy’s Office of Electricity Delivery and Energy Reliability Situation Reports

Millions of electricity customers from Florida to Virginia lost power as a result of Hurricane Matthew. At its peak, on October 9, 2016, Matthew had affected 2.5 million customers across five states. Though the state of Florida experienced the highest number of outages, there was a time during this hurricane that onethird of all customers in the state of South Carolina were without power.

Federal law requires that nuclear plants shut down no less than two hours before hurricane-force winds impact the area. When Matthew made landfall as a Category 3 hurricane on October 6, it did so just north of the St. Lucie Nuclear Plant in Florida. As a result, the one unit at the plant that was generating electricity had to power down. Other nuclear plants in North Carolina were shut down by the loss of external power, which is necessary to prevent the reactor from overheating. •

Alternative Fuels

Power Supply

Coal Generation Expected to Return to Being Most Common Electric Generation Fuel Since April 2015, natural gas has been the United States’ primary fuel source for electricity generation. For many years prior to that, natural gas had been the second most common fuel, behind coal. It now appears that coal will regain the lead once again. Anticipated temperatures and market conditions are expected to drive coal back to being the most prevalent power-generating fuel during the months of December, January, and February.

As has been seen throughout Q4, natural gas prices have been rising, which has driven up the cost to operate natural gas-fired generators. With the onset of winter’s cooler temperatures, the EIA is projecting a continuation of rising

Power Fundamentals

U.S. Electricity Generation Fueled by Coal and Natural Gas

Source: Energy Information Administration (EIA)

natural gas prices to a point that is 40% higher than the cost to run a coal-fired generator. If, however, warmer-than-forecasted temperatures prevail during the winter, it is possible that natural gas could remain a cheaper option for generators, preventing coal from regaining its spot atop the generation stack. •

Power Demand—Holiday Season

Distinctive Power Usage Patterns on Thanksgiving Put This Day in a Class by Itself As Q4 rings in the most wonderful time of the year, this issue of FN360 ought to touch on the holiday season and, in particular, the uniqueness of the demand for electricity on Thanksgiving Day.

U.S. Lower 48 Hourly Electricity Demand by Week, November 2016

During the course of late fall into early winter, a typical day for electric loads consists of a small peak during the morning hours, followed by a larger peak in the evening. This larger peak in the evening is a combination of people heating their homes and cooking upon returning home from work, plus the number of offices that remain open during that time, all consuming electricity. Thanksgiving Day, on the other hand, is an unusual day in that the peaks are the opposite. The peaks are not as high as would be expected on a typical Thursday, and the large peak actually occurs near midday—as cooking and family gatherings typically occur in the early afternoon—with a smaller peak in the evening. Even though the norm is moving toward Black Friday shopping starting on Thanksgiving night, there remains a dip in electricity usage during the overnight hours of Thanksgiving into Black Friday that appears to be lower than any other time during the month of November 2016. •

Source: Energy Information Administration (EIA), EIA-930, U.S. Electric System Operating Data Note: Days based on Eastern Standard Time

Viewpoints The End of the Oil Price War

The year 2016 will be remembered as the end of the oil price war, and possibly as a rebirth of OPEC cooperation. The Saudi-led oil price war caused a price collapse that is only now beginning to reverse. What led up to the oil price war and to the OPEC production cut agreement that followed in late 2016? How significant was the agreement? What are the new directions as the market enters 2017?

OPEC Relevance Is Real, but Unity Is Hard Won

By Dr. Nancy Yamaguchi

OPEC has been a market force since 1960, a variegated group sometimes held together by just one factor: the desire to protect oil revenues upon which the governments rely. Despite the common goal, OPEC has not been able to act as a true cartel for extended periods of time. Its grouping is too diverse, and some of its members have clashed repeatedly. This makes the recent agreements even more noteworthy. OPEC’s power in the market is not limited by its resources or its market expertise, but by a lack of unity.

As 2017 begins, the OPEC production cut agreement is at the top of the headlines. Already, prices have risen upon the announcement of cuts. Traders are asking how they can verify whether the cuts are real, and if so, how long it will be before someone “cheats.”

Shares of Global Oil Reserves—billion bbls

In the past, OPEC has made pronouncements, signed agreements, and set production quotas, all of which failed because members broke ranks. OPEC has been repeatedly disparaged for being ineffectual, harming its credibility. Over the past year, the expression “verbal intervention” was coined to describe OPEC’s pattern of making announcements about price stabilization without action to back them up. Some have said that OPEC is no longer relevant, but they are mistaken. OPEC is relevant. Were it not, it could not have launched the price war, nor been able to bring about the price war’s end. Led by Venezuela, Saudi Arabia, Iran, and Iraq, OPEC possesses over 70% of global oil reserves—over 1,200 billion barrels as calculated by BP.

Source: BP

Viewpoints Saudi Arabia increased its production to over 10,000 kbpd in 2015, and continued to raise output during 2016. As Saudi Arabia ramped up production and let prices fall, U.S. production finally began to fall, declining to 8,871 kbpd during the January – November period of 2016.

Saudi Arabia and U.S. Crude Production, kbpd

Courtesy of Reuters

Developing the Algiers agreement and the production cut agreement that was formalized in Vienna required continual negotiation. The market was often frustrated by announcements about progress that did not materialize. Considering the numerous bitter conflicts among OPEC countries throughout history, it is amazing that members manage to agree at all, particularly those with shared or disputed borders. Iran and Iraq, for example, had a long history of border disputes and engaged in the Iran-Iraq War, which lasted eight years. Iraq and Kuwait have also experienced conflict, including Iraq’s seven-month occupation of Kuwait that required international military intervention led by the United States. Saudi Arabia and Kuwait, allies during the Iraq-Kuwait War, have had spats over oil production in their shared neutral zone. OPEC itself was the target of a terrorist attack at its 1975 meeting in Vienna, when a militant group led by Venezuela made death threats against the Saudi and Iranian ministers, among others. The kidnapped ministers were released in Algeria, yet another OPEC country. Given this complex history, the production cut deal is an astounding achievement. The production cuts are now in the process of being instituted. The global market retains a level of skepticism about whether the cuts will be made and maintained, but it appears likely that at least some cuts will be made, and that the coalition will make a serious attempt to bolster prices.

Saudi Arabia and the Oil Price War, 2014 – 2016

The oil price war began in late 2014, when Saudi Arabia stepped down from its selfimposed role as crude price moderator. A leader within OPEC, Saudi Arabia has the largest reserves and production in the organization, plus a market-moving capacity to bring spare production online. The Saudis have used this spare capacity to expand output when markets were tight, and they have reduced output when markets were oversupplied.

*2016 data includes January – November

Source: OPEC Monthly Oil Market Report

While U.S. production fell, output from other Middle Eastern OPEC countries rose dramatically. Saudi Arabia was losing market share not only to U.S. producers, but also to other Middle Eastern producers. Output from Middle Eastern members other than Saudi Arabia rose from 12,300 kbpd in 2012 to 14,900 kbpd during 2016. Crude output from non-Middle Eastern OPEC countries fell from 9,700 kbpd in 2012 to 7,600 kbps in 2016, chiefly because of declines in Venezuela’s ailing energy sector and continuing violence in Nigeria. After deciding to ramp up production at the end of 2013, Saudi Arabia’s 2014 output rose by 76 kbpd, and other Middle Eastern OPEC countries reduced output by 566 kbpd. OPEC members outside the Middle East cut production by 649 kbpd. In 2015, Saudi Arabia raised crude production by 480 kbpd. Overall, OPEC output rose by nearly a million barrels per day, putting even more pressure on prices. In 2016, the lifting of Iran sanctions led to a swift production increase, adding 434 kbpd on average during the January – November period. Iraq made major strides in rehabilitating its industry, and its crude production rose by over a million barrels per day during the 2016 period. Saudi Arabia also continued to boost output, adding 248 kbpd in 2016. Crude prices dropped below $30/b for a time.

Crude Production—Saudi Arabia, Other Middle Eastern OPEC, and Other OPEC, kbpd

After the global economic recession and the advent of the shale age in U.S. oil production, Saudi Arabia found itself shouldering an ever-larger share of the market-balancing burden. As jobs go, acting as global swing producer was providing little job satisfaction, and Saudi Arabia decided to expand output and let prices plummet. U.S. crude production was rising swiftly between 2012 and 2015. Production rose 45%, from about 6,500 kbpd in 2012 to nearly 9,500 kbpd in 2015. As U.S. production rose, Saudi production languished, falling from 9,763 kbpd in 2012 to 9,713 kbpd in 2014.

*2016 data includes January – November

Source: OPEC Monthly Oil Market Report

Viewpoints

Tumultuous Crude Prices from the Algiers Agreement to the New Year

From Algiers to the New Year: NYMEX WTI Crude Prices ($/bbl)

The price war took a toll on many of the smaller OPEC producers, some of whom called for a meeting in September 2016 to discuss price stabilization measures. The market largely ignored these calls until Saudi Arabia’s Energy Minister Khalid al-Falih announced that OPEC members and non-members would meet in September to discuss the market situation, and they would indeed discuss measures necessary to stabilize prices. The Saudi announcement caused an immediate upward movement in prices. The market showed remarkable faith in what some called “verbal intervention” by Saudi Arabia. Prices rose without any proposal for concrete action. Few expected a credible outcome to arrive from the Algiers meeting. When the meeting participants emerged with an agreement to reduce production—not just place a cap on it—prices began to climb. Prices sagged again as October passed, and November arrived without firm commitments. Prices rose when Russia and OPEC reiterated commitment to the production cuts, but OPEC’s disarray and conflicting messages caused prices to slump once again. On the eve of the November 30 OPEC meeting in Vienna, there was still no firm agreement by the meeting participants. Market confidence in a successful agreement had fallen to 30%.

Source: New York Mercantile Exchange (NYMEX)

pledged to cut 0.3 MMbpd. On paper, Saudi Arabia will institute the largest cut at 486 kbpd. Iraq will follow with a cut of 210 kbpd. Iraq, for a time, indicated that it would not accept a cut, citing the need for funds to fight its war on terrorists. But ultimately, Iraq relented and joined the agreement. The following table presents a summary of OPEC’s production agreement.

OPEC Planned Production Cut, kbpd Member

The OPEC Production Cut Agreement OPEC surprised the world’s oil market watchers when it succeeded in making a production cut agreement at its November 30, 2016, meeting in Vienna. At Algiers, the organization agreed to a proposal to cut production to 32.5 – 33.0 MMbpd. After two months of difficult negotiations following the Algiers agreement, and despite widespread skepticism about OPEC’s ability to reach consensus at the Vienna meeting, an agreement was reached that did far more than save face. OPEC chose the more aggressive target of 32.5 MMbpd in January 2017. According to the group’s internal calculations, that quantity equates to a 1.2 MMbpd cut from current levels.

January 2017 Planned Cuts

Adjustment*

Algeria Angola Ecuador Gabon Iran Iraq Kuwait Qatar Saudi Arabia UAE Venezuela

1,039 1,673 522 193 3,797 4,351 2,707 618 10,508 2,874 1,972

-50 -80 -26 -9 +90 -210 -131 -30 -486 -139 -95

Participating OPEC 11

30,254

-1,256

*Adjustment is based on OPEC’s adopted baseline of current production Notes: Indonesia (a net oil importer) withdrew from OPEC Libya and Nigeria received exemptions because of internal unrest Iran negotiated an increase because of prior sanctions

The agreement also called for 0.6 MMbpd of cuts from non-OPEC countries, to be led by Russia, which

OPEC publishes two sets of crude production data: one that is based on official submissions from the member countries, and one that is compiled from secondary sources. For some countries and in some months, there are gaps in the data. Moreover, the data is subject to political pressure.

The OPEC 11—Year-Over-Year Change in Crude Production (kbpd)

There has been an incentive to boost production and/or production data in order to secure a larger baseline from which the production cuts would be made. Therefore, adopting an acceptable baseline of current crude production was not a simple matter. The table provides the agreed-upon production level for January 2017, along with the derived adjustment from current production levels. The proposed cuts affect each country in a different way. Saudi Arabia increased its crude production by 660 kbpd in 2015 – 2016, so by agreeing to a 486 kbpd reduction, they have essentially reversed three-quarters of their new output. Since Iran is still bringing old production online, they were permitted to bring an additional 90 kbpd online above their baseline. Iraq, like Saudi Arabia, greatly expanded output in 2015 – 2016; their 210 kbpd cuts are less than 20% of the new capacity added over those two years.

*Based on OPEC secondary sources data, with 2016 data January – October

Source: OPEC Monthly Market Oil Report

The 11 OPEC countries participating in the production cuts added 2,368 kbpd over the past two years. Contrast this with the proposed cuts of 1,256 kbpd, or just over half of the new added volume.

Among the smaller producers, the UAE, Algeria, Angola, Ecuador, Gabon, and Venezuela each agreed to cut production to 2014 levels or below. Qatar also cut production below its 2014 level, but as the world’s largest LNG exporter, they are less reliant on oil export revenues.

The latest news indicates that OPEC production hit a new record in November 2016, just before the production cut agreement was made. Some of this production came from Nigeria and Libya, which are exempt from the deal.

Kuwait is in a unique situation due to its disputes with Saudi Arabia over the jointly held Partitioned Neutral Zone (PNZ). Although they accepted cuts below their 2014 production levels, Kuwait and Saudi Arabia announced that they planned to resume PNZ production.

It is impossible to say whether production in Nigeria and Libya will continue to rise, or whether internal strife will quell output once again. However, these trends raise the question of whether other producer countries will cut deeper into production to compensate.

Viewpoints

The Non-OPEC 11 Join the OPEC 11 During 2016, several other producer countries participated in discussions with OPEC about market stabilization strategies. Russia was the largest oil producer among them. On December 10, 11 non-OPEC countries joined the 11 OPEC countries who had already committed to production cuts. Thus, in a nice bit of numerical symmetry, we have an OPEC 11 and a non-OPEC 11, and they forged an agreement on 12/10. After agreeing upon a 1.2 MMbpd production cut amongst OPEC members, OPEC lobbied key non-OPEC producers to join efforts to reduce the global oil oversupply. The OPEC target for other producers was 0.6 MMbpd. Early in the process, Russia agreed to take half of this total and cut production by 0.3 MMbpd. The December 10 meeting won formal commitments from 11 non-OPEC countries: Russia, Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Sudan, and South Sudan. These producers committed to a reduction totaling 558,000 barrels per day, fairly close to the 600,000 bpd target originally set. Like the OPEC agreement, the new production target will take effect January 1 and lasts for six months, with an option to renew for another six months. Experts have noted that the “NOPEC” agreement may overstate the cuts being made. Some of the countries committing to cuts have oilfields that are already in decline. Their agreed-upon production levels do not involve a cut beyond what would naturally have occurred. Mexico is one major producer whose crude output has been sinking because of lack of investment. Nonetheless, having these countries agree to a reduced maximum output formalizes the decline and allows countries to manage their fields accordingly. Without a commitment, any or all of them might have seen higher oil prices as motivation to increase investment and elevate production. Russia, Kazakhstan, and Oman, at a minimum, are formally cutting production. If participants adhere to the new production levels, the brimming global stockpiles will gradually be drawn down, removing the seemingly inescapable downward pressure currently on oil prices. OPEC has acknowledged that the cuts will not instantly change the oversupply, but the process of achieving supply/demand balance will be hastened. Collectively, in 2015, the non-OPEC 11 produced 18.4 MMbpd, 20% of global output. The pledged cut of 0.558 MMbpd implies a cut of approximately 3% each.

The OPEC 11 and non-OPEC 11 meetings caused crude prices to surge. WTI prices have topped $54/b. Prior to the November 30 OPEC agreement, analysts had forecast that prices could drop as low as $35/b if the meeting was unsuccessful. The OPEC success caused prices to surge back above $50/b. The OPEC 11 and non-OPEC 11 agreement not only caused WTI prices to hit $54/b, it has also eradicated talk of $35/b oil in 2017. Investment houses and analysts are now revising their forecasts, and many expect prices of $60/b or even $70/b in 2017.

The Non-OPEC 11 Crude Production, kbpd

*Author’s estimate

Saudi Arabia added further credibility to the agreement by announcing it would be willing to cut even beyond the level it had pledged in order to make the agreement work. This guarantee is inspiring confidence in the market. As the world’s largest oil producer and the country that fired the first shot in the oil price war, very little could have been achieved without Saudi leadership.

Source: OPEC Monthly Market Oil Report

Viewpoints

Producer Unity—The Necessary Ingredient As always, the market will watch for actions rather than just words, because history has shown that OPEC is not a unified bloc. An individual country may break ranks and exceed its production quota, followed by another. With 11 non-OPEC countries in the mix, it will be even more difficult to police production. Little doubt exists, however, that the coming months will bring action rather than just words. Saudi Arabia has shown determination to make the deal work, surprising observers by stating that it would go beyond the cuts it had promised. These statements appear credible, given Saudi Arabia’s desire to reduce its economic reliance on petroleum. In April 2016, Deputy Crown Prince Mohammed bin Salman unveiled his blueprint for “life after oil,” which includes plans to sell a small portion of Saudi Aramco, raise non-oil revenue, and create the world’s largest sovereign wealth fund. The amount of activity and cooperation among the OPEC 11 and non-OPEC 11 has been unprecedented in the global oil market, as is proven by the price response. Without the production cut agreement, the $50/b prices initially forecast for the end of 2016 would most likely not have materialized. It will be a challenge to track OPEC and non-OPEC compliance. Some countries are making visible efforts to meet their pledges while others are reticent, and Iran has already loosened supply by selling millions of barrels of crude from floating storage. Hard numbers will be hard to validate, but falling inventories and strengthening prices should provide evidence that the market is moving into balance. OPEC oil revenues will rise, and the group may be able to view the price war as a success.

As a final note, even if the OPEC 11 and non-OPEC 11 manage to maintain unity and adhere to their pact in the coming months, there is no such pact restraining U.S. producers. The U.S. active oil rig count has recovered, the decline in production is reversing, and many U.S. companies are gearing up to take advantage of what now appears to be a stronger price environment. OPEC has been criticized for a lack of unity, but U.S. producers make no pretense of unity at all. They take pride in their independence, and will take advantage of higher prices when given the chance to do so. Most forecasts anticipate stronger prices and a better supply/demand balance in 2017, but the path is not likely to be smooth. •

Nancy Yamaguchi, Ph.D. Contributing Editor

Nancy Yamaguchi is Contributing Editor for Mansfield Oil’s FUELSNews daily newsletter and the FUELSNews 360° quarterly. She works closely with the Mansfield team to cover a wide range of topics that influence North American fuel markets. Dr. Yamaguchi has over 20 years of industry experience, and has spoken at numerous industry conferences and events nationwide.

Viewpoints

Sleep Apnea: A Truck Industry Epidemic

By Dan Kemeny

More and more, we are hearing from trucking associations and safety groups about the impact of sleep apnea on truck drivers. While some estimates show the overall number of individuals impacted by the sleep disorder to be up to 10% of the population (a startling number in itself), that number increases significantly in commercial truck drivers.

Additionally, and of major impact to fleet operators, the lack of quality sleep may impact an individual’s ability to concentrate, react, and stay alert while performing everyday activities. When that individual is driving a commercial vehicle or hauling hazardous materials, the impact becomes that much more concerning.

A study conducted by the University of Pennsylvania, sponsored by the Federal Motor Carrier Safety Administration (FMCSA), among others, found that nearly 30% of commercial truck drivers suffer from mild to severe sleep apnea.

Studies reveal that untreated sleep apnea contributes to an increased risk of motor vehicle crashes, some reporting the increase to be as much as two to three times as likely to be involved in an accident. Some studies have even gone as far as to relate the effects of fatigued driving to drunk driving.

So, why such an epidemic within the trucking industry? The simple answer lies in the nature of the job and the demographic of the typical commercial driver. While sleep apnea can affect anyone, regardless of gender, age, or profession, those most commonly impacted are male, overweight, and over 40 years old. Additional risk factors include the size of an individual’s lower jaw, tongue, tonsils, and neck, if they are a smoker, or if they have a family history of suffering from sleep apnea. The word “apnea” comes from the Greek language and translates to “want of breath.” When an individual suffers from this sleep disorder, breathing is interrupted during sleep, most commonly due to the air passages briefly collapsing and causing a blockage, but can also be a result of the brain not sending signals to the muscles that control breathing. This can happen hundreds of times a night and occur for up to a minute or longer each time.

Treatment ranges from lifestyle changes, such as losing weight or changing sleep position, to therapy, or even surgery. The most common treatment is called a continuous positive airway pressure, or CPAP, which sends a steady stream of air down the throat to ensure constant and consistent breathing. Quite simply, untreated sleep apnea causes individuals to be less alert than normal, and if that person is behind the wheel of a “rolling bomb,” the impact can be severe. Operators have a responsibility to help ensure the safety of their team and the general public. If you haven’t already, it’s time to start talking about sleep apnea. •

The accompanying decrease in oxygen in the blood will eventually trigger the lungs to draw in air. Occasionally, someone who suffers from sleep apnea will wake up gasping for breath or will feel a choking sensation. More often, however, the body’s natural reaction to start breathing again will lead to the person experiencing a state of partial awareness while having little to no recollection of the event after the fact. Sleep apnea prevents oxygen from getting to the brain and the rest of the body, and may prevent someone from getting enough oxygen throughout the night. This can have serious and life-threatening consequences, such as high blood pressure, increased likelihood of depression, stroke, heart failure, heart attack, diabetes, and/or headaches, as well as worsening PTSD.

Dan Kemeny

Senior LTL Logistics Manager Dan Kemeny leads Mansfield’s LTL department in Denver. His responsibilities include overseeing the logistics and billing for all of Mansfield’s fleet fueling and tank wagon deliveries. Prior to his current role, he spent time handling Mansfield’s FTL and DEF transportation and regional operations.

Viewpoints

GPS Tracking Versus the Fourth Amendment

By Nikki A. Booth

Recently, a federal mandate requiring all U.S. truck operators (year 2000 and later) to use electronic logging devices (ELDs) to track duty status was upheld by the U.S. Court of Appeals. The Owner-Operator Independent Drivers Association (OOIDA) challenged the mandate and lost, citing that the ELD mandate, among other issues, violates the Fourth Amendment rights against unreasonable search and seizures.

The final ruling on the mandate, requiring December 18, 2017, compliance, is intended to help create a safer work environment for drivers, and make it easier to accurately track, manage, and share records of duty status (RODS) data. For many truck drivers, their truck is not just a vehicle, but also their office, and for some over-the-road truckers, their “home away from home.” Since ELDs record information 24 hours a day, they might record the movements of drivers during their personal time. In those circumstances, the ELD mandate could be perceived as a violation of privacy, which would indeed call attention to the Fourth Amendment. The Fourth Amendment of the U.S. Constitution states, “The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.” The OOIDA argued, in its appeal of the ELD mandate, that requiring electronic monitoring devices on commercial vehicles does not advance safety, is arbitrary and capricious, and violates Fourth Amendment protections against unreasonable searches and seizures. Looking at this further, couldn’t the same concerns apply to any company-owned vehicles or property? In today’s workplace, whether on company-issued equipment or on personal devices, employee availability and response is expected within an immediate timeframe. It is argued that ELDs and GPS devices can benefit both the employer and the employee during situations in which delivery status needs to be checked or a vehicle breaks down. This is crucial to the success of supply chain companies, which, in turn, benefits the U.S. economy. Employees in these situations are aware that a GPS device has been installed on the company vehicle he or she is driving, and that the employee’s movements are being tracked while on duty. However, privacy issues can

arise if and when employers use GPS data in connection with investigating alleged misconduct in the workplace. Employees that work on the road tend to have more freedom than the average worker, but evolving technology with decreasing costs gives employers new ways to keep track of their employees. This extends further than the ELD mandate when it comes to big business. And, conversely, concerns over employee privacy are increasing. Most courts have deemed tracking devices to be reasonable since workplace surveillance is legal and more common than not. However, companies should be mindful to ensure that they are not violating the Fourth Amendment rights and the right to privacy of employees. For instance, tracking an employee’s performance and whereabouts can apply only during work hours. Also, there should be a legitimate reason for tracking an employee’s movement through GPS technology or ELD. Additionally, some states—like California, Connecticut, Delaware, and Texas—have laws requiring either notice or consent prior to placing a GPS on another person’s motor vehicle. Even though the FMCSA has mandated ELD usage by December 2017 with the intent to create safer roadways, bolster public safety, and improve working environments for drivers, there will continue to be concerns on whether or not that mandate, along with GPS tracking, violates an employee’s Fourth Amendment rights.

Companies should study and implement electronic surveillance policies, ensuring that ELD usage and tracking of employees via GPS remain in line with that policy. Companies can legally monitor employees’ activities if they have written policies stating they should not have an expectation of privacy at work. The policy should remind workers that GPS-equipped technology provided by the company belongs to the company and is only to be used for work. At the same time, make it clear that the company reserves the right to use GPS in devices provided to workers to keep tabs on them during work hours. Employees who use company phones, Internet, computers, and vehicles are responsible for following company policies and guidelines. •

Nikki A. Booth

Carrier Relations Manager

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

Four Steps to Creating a World-Class Mobile Refueling Program

By Jeremiah Cooke

database in which every gallon is properly accounted for. Partner with suppliers that have the technology required for mobile refueling data collection and strive to integrate automated data feeds.

2. Validate Costs Upfront

Fuel purchasing is one of the most important cost activities for a fleet operator. According to a study published this past October by the American Transportation Research Institute (ATRI), fuel comprises 25% of the costs in trucking, second only to driver wages and bonuses at 39%. Mobile refueling goes by many names: “fleet fueling,” “direct-to-equipment,” the antiquated “wet hosing,” “wheel-to-wheel” as our Canadian friends may say, and so on. We may not be able to agree on a name, but we can all likely agree that building a robust purchasing program can be tough.

Negotiating favorable fuel deals is a core part of reducing costs, but it is a futile endeavor if the values are not realized due to billing errors. Confirming invoice accuracy is the only way to know negotiations are yielding intended results.

Share of Trucking Operational Costs—2016

Two major trends have contributed to the rising prevalence of mobile refueling. The first factor is high rack-to-retail spreads. The wide gap between wholesale and retail fuel prices has made mobile refueling a more competitive mode of fueling. The second component is the rising opportunity cost of driver time, which can add 15 – 20 additional cents per gallon when factored in.

Source: American Transportation Research Institute (ATRI)

When making decisions about mobile refueling, central buying agents and local managers often find themselves at odds. Corporate purchasers are focused on consolidating vendors, building strategic relationships, reducing cost, and increasing efficiency; local managers are concerned with maintaining high-quality, dependable service with well-known local suppliers. These (often competing) agendas result in dissatisfaction with either corporate visibility or sitelevel operational performance. But there are ways to satisfy both groups, promoting efficiency and cost savings even while local managers receive the highest-quality local care.

2015 – 2016 Rack-to-Retail Spreads

Some mobile refueling suppliers price customers on inventory or rack plus structures, claiming they can buy better than the indexed rates and pass savings to the consumer. In reality, savings are rarely passed to the customer, and with no way to verify the market price, purchasers cannot know if they are receiving a good value. The fact that the market changes daily with price swings of several cents per gallon adds to this complexity.

Source: Oil Price Information Administration (OPIS) and Energy Information Administration (EIA)

1. Aggregate and Consolidate Start by aggregating all of your fuel information into one central data warehouse and consolidating data input as much as possible. Driving all purchasing activities to one platform enables purchasers and local managers to establish baselines, compare data on a consistent stage, and set benchmarks. If possible, consolidating the number of vendors in your program results in reduced costs associated with managing vendors, paying invoices, and tracking payables. Fueling and pricing information should be tracked to the vehicle level to establish an information-rich

Fuel costs typically contain three components: product, freight, and taxes. Suppliers will price product using several methods. A third-party indexed cost, such as OPIS, is the preferred pricing method. Third-party indexes accurately report the market price for fuel and allow purchasers to confirm they are paying fair rates.

Freight and fees should be consistent numbers and validated on each invoice. Finally, validating taxes is an important part of reducing risk. As stated by the tax software company Avalara, “Even when a buyer has paid the invoiced taxes in good faith, if taxes have been underpaid, the tax authority will demand back taxes, penalties, and interest.” Validation of taxes before invoicing significantly reduces this risk.

3. Post-Audit Transactions

Using an index-based pricing structure will simplify transaction postaudits. Sample transactions can be evaluated to extrapolate confirmation of correct charges. If any sites are not using an indexed price, the first step, aggregation and consolidation, will make it easy to pull all transaction costs and conduct a complete review for soft validation after the fact. Costs should be evaluated against benchmarks to ensure they are in line with expectations.

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4. Reporting and Data Analytics

With all fuel transactions in one central data warehouse, corporate purchasers and local managers can work together to identify opportunities for improvement. Organizations can shape purchasing behaviors of decentralized decision makers by supporting best practices with proven results. Vehicle-level transaction reporting helps local managers analyze service levels and improve operations by optimizing delivery frequency and timing. Vehicle-level data can give you insights into average vehicle fill level, vehicle fill capacity, frequency of delivery, and average gallons delivered. Evaluating these metrics against benchmarks can help drive out costs.

Beneficial Outcomes

Mansfield’s customers have reported savings of three to fifteen cents per gallon after adopting these principles. With consolidation and increased transparency, fuel buyers are equipped with the information needed to optimize fuel purchasing and reduce costs. •

Jeremiah Cooke

Fuel-All Product Manager

Jeremiah leads Mansfield’s Fuel-All team, which provides turn-key data centralization and transaction validation solutions. He started with Mansfield in 2013 and has worked closely with the LTL team, bringing innovative and cost-saving solutions to Fuel-All customers.

Viewpoints

Urea and DEF Prices Set to Rise

By Alan Apthorp, Market Intelligence Analyst

See his bio, page 52

After a long period of decline, urea prices are beginning to turn around from their fiveyear low and have been on the rise for three straight months. Prices slipped below $200/ton in the middle of 2016—the first time since January 2006—and are now slowly making their way back up.

U.S. Gulf Coast Urea Prill Imports

As many fleet managers learned back in 2010, urea is the main active ingredient in diesel exhaust fluid, which has been a required chemical in diesel engines for six years. Source: Bloomberg Green Market

DEF is made up of two ingredients: 32.5% urea and 67.5% deionized water. The urea is heated in an SCR diesel engine to become ammonia, which combines with harmful NOx emissions from diesel fuel to produce nitrogen, water, and CO2. Because urea is such a crucial ingredient in DEF, its price directly affects fleet budgets. Despite the fact that urea makes up a large portion of DEF’s chemistry, the price increase will not be as significant for fleets as you might expect. A $100 change in urea per ton will only cause the price of DEF to change by about 15 cents per gallon. The largest components of DEF prices are comprised of production, storage, and logistics costs. Mansfield has seen high-volume DEF consumers save up to 50% per gallon when they installed bulk DEF storage tanks. If your budget is affected by DEF prices, you may want to consider ways to expand your storage capabilities and take advantage of bulk logistics to avoid higher prices. •

The recent rise in prices is due in part to a drop in Chinese prilled (finely ground) urea exports. Unlike U.S. and other international manufacturers who use cheap natural gas in the manufacturing process to create nitrogen, China relies on coal, which has grown more expensive in recent years. Between rising coal prices, high existing inventory, and stringent Chinese regulations on the industry, several Chinese plants have been forced to shut down, taking new supply off the market. Analysts expect these shutdowns to reduce Chinese exports by nearly 30%. Chinese production could come back online, however, if rising urea prices can offset the high production costs. Many suppliers now expect that urea prices will continue to grow in the foreseeable future, thanks to above-average seasonal agricultural demand. U.S. imports of urea have fallen 65% since July, offsetting the slow rise in domestic production. The new rising price environment may be slow to take hold given traditionally low winter demand, but you can expect prices to rise going into spring 2017. Assumptions: *120,000 miles per year, 6 MPG **2% DEF per gallon of diesel

Mansfield’s 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 that is 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

Amy Nguyen

Andy heads the supply group for Mansfield. During his tenure, the company has grown from 1.3 billion gallons to over 2.5 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. •

Amy is responsible for both refined product purchasing for contract customers and bulk pipeline movements within California, Oregon, Washington, Idaho, Nevada, and Arizona. She is also responsible for scheduling, hedging, supply bids, and other optimization efforts throughout the West Coast. Amy joined Mansfield in 2014 as an optimization analyst. •

Senior VP of Supply & Distribution

Supply Optimization Supervisor

Keith Crunk

Power & Gas Supply Manager

Keith Crunk is responsible for managing supply purchases for contracted customers in various markets, long-term physical and financial hedging, pipeline and storage asset management, and pipeline scheduling. Keith has over a decade of experience with analytics and forecasting in the power and gas industry. •

Dan Luther

Senior Supply Manager

Dan is responsible for refined products supply and hedging in Mansfield’s region running from Texas north to Chicago. Before joining Mansfield, Dan managed barge, rail, and truck fuel deliveries as well as ethanol trading responsibilities across the U.S. •

Martin Trotter

Nate Kovacevich

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. •

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 agriculturaland petroleum-related risk, devised and implemented risk management programs, and executed futures and option orders on all the major exchanges. •

Chris Carter Supply Manager

Chris is responsible for refined product purchases, including contracts, day deals, and rack purchases. The Southeast region covers Florida, Georgia, Mississippi, Alabama, Tennessee, South Carolina, North Carolina, Virginia, and Maryland. His responsibilities also include supply contracts and current bids. Chris manages pipeline shipments of gas and diesel on the Colonial, Plantation, and Central Florida Pipelines. •

Pricing & Structuring Analyst

Sara Bonario Supply Director

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. •

Alan Apthorp

Market Intelligence Analyst

Alan is responsible for content editing, research, and data analysis and visualization at Mansfield, and is an editor for FUELSNews Daily and FUELSNews 360°. He also works with Mansfield’s product marketing team to analyze trends to generate valuable insight for Mansfield’s customers. Alan joined Mansfield in 2015, and has served both as a customer relationship manager and as a supply scheduler with Mansfield’s Power & Gas division. •

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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 2017. 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.

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