FUELSNews 360° - Q3 2019 Market Report by FUELSNews

M A R K E T

N E W S

3rd QUARTER Q3

I N F O R M A T I O N

Table of Contents FUELSNews 360° Quarterly Report Q3 2019 FUELSNews 360°, published four times annually by Mansﬁeld Energy Corp, analyzes and summarizes the prior quarter’s activity in the oil, natural gas and reﬁned products industries. The purpose of this report is to provide industry market data, trends and reporting—both domestically and globally—to provide insight into upcoming challenges facing the energy supply chain.

Executive Summary

Regional Views continued

Overview

July through September 2019

Crude Prices

Fuel Price Overview

Rack-to-Retail Spreads

Nate Kovacevich

28 29

Alternative Fuels 30

Fuel Demand

Fundamentals 16

Inventories

Reﬁnery Utilization

Crude Oil Production

Imports & Exports

Renewables Sara Bonario

32 16

Canada Nate Kovacevich

Economy & Demand 14

PADD 5 West Coast Sara Bonario

30 12

PADD 4 Rocky Mountain

Natural Gas Supply, Demand, Storage Martin Trotter

Viewpoints 35

Three Ways to Combat Rising Truck Insurance Rates Nikki Booth

Regional Views

2020 Fuel Price Forecast Alan Apthorp

PADD 1A & B East Coast

Dan Luther

Alan Apthorp

PADD 1C Lower East Coast PADD 3 Gulf Coast

Gabe Aucar

Fuel Budgeting Checklist

PADD 2 Midwest Dan Luther

FUELSNews 360˚ National Supply Team Contributors

Q3 2019 Executive Summary While Q3 lacked a strong directional bias for prices, the quarter was not without volatility. Economics, geopolitics and fundamental forces joined in a tug-of-war that kept crude prices range-bound between $50-$60 per barrel throughout the quarter. The pervasive theme throughout the quarter – and more broadly in 2019 – has been the slowing global economy and declining oil demand. Most major oil and economic reports have sliced their demand predictions for 2019 and 2020, some many times, to keep up with weakening sentiment. Perhaps most alarming was a yield curve inversion in August, stirring up warnings of an approaching recession. Central banks worldwide have reacted in step, cutting interest rates to stimulate economic growth. These actions have helped slow the descent of oil prices, at least for now. The economy can hardly be mentioned without considering the US-China trade war. The repercussions of tariffs are rippling through developing economies, though economists disagree on the full impact. The trade war is covered in more depth on page 12. Even as OPEC managed supply through production cuts, they were unable to sustainably move prices out of a narrow range during the quarter. The transition of Saudi Arabia’s energy minister gave markets a brief fright, but the new minister, a member of the royal family, promised to maintain the group’s focus on managing global supplies to offset rising American production. No event more clearly demonstrates the market’s bearish bias than the drone attack on Saudi Arabia’s oil production, the largest oil infrastructure attack in history. With 5% of the world’s oil production offline, markets rocketed higher overnight; within a week, however, prices had returned close to previous levels. Saudi Arabia quickly filled the production gap, and an event that would have caused $50/bbl gains a few years ago came and went with virtually no discernable impact. While the attacks did not significantly alter oil fundamentals, it did reveal the vulnerability of world oil outputs. With America and Iran at odds, Middle East risk has risen. Oil tankers attacked and abducted in the Strait of Hormuz and the Red Sea caused fears that tensions could escalate – eventually disrupting oil flows on a broader scale.

Looking ahead, prices appear comfortable with the narrow band we have seen for the several months. All eyes will remain on the US-China trade war for signs of improvement or regression, though little progress should be expected. With IMO 2020 around the corner, transportation companies are closely monitoring diesel inventories for signs of tightening. Regional Perspectives On the East Coast, the PES refinery closure in Pennsylvania created a regional supply gap, pitting Northeast consumers against Latin American purchasers in a bidding war for Gulf Coast refined products. While Gulf Coast refiners should meet the call for more supply, the refinery shutdown could cause short-term disruptions, especially during severely cold weather. Dan Luther explains in greater detail on page 22. Hindered planting in the Midwest due to record rainfall could result in less acreage to harvest and accordingly less diesel demand in the fall. At the same time, local refineries have struggled with production issues. Which factor will control fuel prices? Dive deeper with Dan Luther on page 26. On the West Coast, supply outages and high prices due to refinery outages continued into Q3 from the previous quarter. Sara Bonario shares how these market conditions affect fuel buyers on page 28. Viewpoints The rise of truck insurance premiums is rarely discussed, but is a big factor impacting the logistics industry in the last several years. Learn how to combat rising truck insurance rates with Nikki Booth on page 35. As companies prepare for their 2020 budgets, they have a wide array of questions on how to control their fuel prices. Learn about best practices on page 40 with Mansfield’s methodical checklist on fuel budgeting. Not sure what price target to use for 2020? Alan Apthorp succinctly summarizes market forces and presents a 2020 price forecast on page 36.

OVERVIEW July through September 2019

Q3 Market Summary

$1.9056 $1.6049

$54.07

26,916.83

Source: New York Mercantile Exchange (NYMEX)

Overview

Q3 2019 Crude Prices

Source: New York Mercantile Exchange (NYMEX)

July The third quarter of 2019 started with OPEC officially announcing plans to extend OPEC+ cuts for nine months ending March 31, extending through the low-demand winter season. The group also adopted a charter to govern the OPEC+ framework, which includes OPEC along with other independents such as Russia and Mexico. The charter solidifies the group’s collective actions, which Saudi Arabia noted may become a permanent fixture of the market. In Europe, British forces seized an Iranian oil vessel hauling 2.1 MMbbls near the Straits of Gibraltar, claiming it violated EU sanctions policy regarding Syria. Notably, the action was proclaimed to be unrelated to U.S. sanctions. Iran repeatedly gave assurances to the government of Gibraltar that the vessel would not deliver oil to any EU-sanctioned entity in Syria or elsewhere. The British later allowed the tanker to pass with these assurances even as the U.S. called for its continued detention. After zig zagging through the Mediterranean, the same vessel was seen near Syria off-loading oil onto smaller boats. 7

Overview Shortly after the British captured the Iranian vessel, Iran captured a British oil vessel travelling through the Strait of Hormuz. Iran claims the seizure was in retaliation against Britain’s seizure weeks prior. While this latest development added to geopolitical tensions in the region, it’s also brought a silver lining – Britain and Iran were negotiating to resolve their dispute. Back in the U.S., Tropical Storm Barry came and went from the Louisiana coastline, having made landfall over a weekend. While the storm did bring heavy rains and storm surge, the damage was minimal, and infrastructure quickly bounced back. Refineries resumed their normal operations swiftly, making the storm a nonissue from a fuel standpoint. On the US-China front, talks resumed in Shanghai at the end of July, though with little progress. Both sides have reason to prolong negotiations. China is hoping that November 2020 will bring a more trade-friendly administration, while Trump hopes to use on-going negotiations as a campaign topic heading into presidential debates. The latest round of negotiations merely levelled the playing field once again, with China resuming purchases of US agriculture and America taking further tariffs off the table for a time. As July closed, for the first time in nearly a decade, the Fed cut rates by 25 basis points. However, Fed Chairman Powell indicated that the rate cut did not guarantee similar action in the future. Because of Powell’s comments, equities and oil prices actually declined immediately following the rate cut – the opposite of what one would have expected.

August August began with a barrage of new tariffs, with Trump announcing 10% tariffs on $300 billion of Chinese goods, going into effect in September. At this point, America had already imposed 25% tariffs on half of China’s goods, so the move covered the second half of traded goods. Notably, while earlier tariffs mainly hit industrial goods, this round hit consumer goods as well. The tariff announcement caused oil prices to plummet. WTI Crude fell by $4.60, the largest single day drop since November 2014. Shortly after the news of new tariffs, the U.S. labelled China a “currency manipulator” for the ﬁrst time in 25 years, a sign of the deteriorating relationship between the U.S. and China. The move comes after China’s currency fell to 10-year lows, with a 7:1 ratio with the U.S. dollar. A cheap Chinese currency makes Chinese exports cheaper on the global market and counteracts the effects of U.S. tariffs. As mid-August approached, the trade war cooled when the U.S. announced they would delay imposing some of the 10% tariffs on certain consumer items until December 15 – notably after elections and the holiday shopping rush. The delay, done in the name of health, safety and national security, applies to an array of consumer goods including electronics and certain clothing. Later in the month, China announced retaliatory tariffs on $75 billion of U.S. goods. Soybeans, oil, and automobiles among other goods were targeted. Just like U.S. tariffs, some Chinese tariffs were to go into effect in September and some in December. Trump then reacted by raising current tariffs from 8

25% to 30%, effective October 1, and raising the impending tariffs from 10% to 15%. These moves continue an escalating trade war that poses a severe threat to the global economy in 2020, which ultimately is the biggest reason why oil prices are falling. A yield curve inversion in mid-August, the first since 2005, caused economic news to move from international to domestic trends. The interest rate on 10-yr bonds slipped to trading below 2-yr bonds, meaning investors are more worried about getting cash over the next two years than they are about the next 10 years. The inversion signals that markets expect to become cash-strapped in the nearterm, a sign of poor growth and weak markets. Yield curve inversions are one of the strongest leading indicators of a recession and have been a precursor to each of the last five recessions. In the Middle East, Yemeni Houthi rebels fired a drone at a Saudi oil field. No casualties or production impacts were reported, but the attack highlighted the continued tension and danger in the region. The Houthis are generally considered to be a proxy for Iranian efforts, making the series of recent Houthi attacks a problem for Middle East relations. Saudi Arabia and Iran sit on opposite sides of a millennia-long religious conflict. Little did anyone realize that the single drone was merely an omen of more misfortune to come. © 2019 Mansfield Energy Corp

Overview

September As September began, Hurricane Dorian’s slow and ever-shifting approach to the U.S. dominated headlines. Dorian wreaked havoc as it stalled for 18 hours over the Bahamas. Next, it skirted along the southeast coast of the U.S. – dumping rain on Florida, Georgia, South Carolina, and North Carolina. While Dorian dealt a devastating blow to the Bahamas, the storm proved to be a non-event for oil markets, with minimal impacts to fueling infrastructure in the US. Still, elevated demand throughout the Southeast taxed carrier capacity and made fueling operations difficult. At the same time, oil markets were rocked when Saudi Arabia replaced its Energy Minister Khalid al Falih with Prince Abdulaziz bin Salman, the first time a royal family member had held the Energy Minister title. Many speculated that King Salman and the Crown Prince Mohammed bin Salman were consolidating power ahead of Saudi Aramco’s initial public offering, a key component of Saudi Arabia’s plan to diversify its economy. Falih, who championed the OPEC and Non-OPEC production agreement in 2017, was not a strong supporter of the IPO. Markets took yet another nosedive upon news that Trump was firing his National Security Advisor John Bolton. Coincidentally, around that same time rumors spread that Trump might consider easing sanctions on Iran in order to secure a face to face meeting with Iran’s president Rouhani. Trump’s evolving stance on Iran is reportedly behind his decision to fire Bolton, known for his hawkish stances. Treasury Secretary Steven Mnuchin later clarified that the U.S. had no intention of easing sanctions in exchange for resumed negotiations with Iran. Then, in mid-September, the oil market saw one of the most severe attacks in modern history. On September 14, Saudi Arabia experienced numerous drone strikes against facilities in Abqaiq and Khurais, taking 5.7 MMbpd – 5% of all global oil production – offline. Oil prices rocketed higher, leading to the 9

largest price spike in crude history. Crude traded as much as $11/bbl higher after news of the attack, up 20% in overnight trading. Yemeni Houthi rebels, generally believed to be supported by Iran, took credit for the attack and claimed they launched ten drones. Saudi Arabia held a press conference a few days after the attacks, and during the meeting the kingdom indicated that Saudi Aramco had already restored over half of its production, and the facilities would resume normal operations by the end of September. With the outage reduced, Saudis committed to maintaining exports by using strategic reserves and activating idle capacity. An international consensus quickly agreed that the weapons and sophistication of the attacks were beyond Yemeni Houthi rebels’ ability to execute, and many nations declared that Iran was the force behind the attacks on Saudi oil infrastructure. In response, the U.S. increased sanction on Iran. This measured response to Iran in lieu of a military action kept market prices subdued. The Saudi’s later launched airstrikes against the Houthi rebels in Yemen. As September closed, Saudi Arabia agreed to a ceasefire with Yemen following an unexpected request by Yemeni Houthi rebels just days after they claimed credit for the attack. The ceasefire follows a Saudi attack on Yemen that killed 17 civilians and reportedly used U.S.-made weapons. While eyes are still focused on Iran, the Saudi-Yemen conflict has been waged for years and had put Saudi oil at risk several times. A ceasefire, for however long it lasts, could help moderate market risk premiums. For oil prices, the Saudi attack proves the resilience of global oil markets. Ten years ago, that attack would have propelled oil prices above $200/bbl – now it caused a mere $10/bbl gain, and prices quickly fell once supply resumed. •

Overview

Fuel Price Overview Overall, crude oil ended Q3 at a lower average price than the previous quarter. Q2 prices moved downward as that quarter progressed, but Q3 prices saw more volatile peaks and valleys despite remaining range-bound between $50 and $60 for the quarter. One notable exception was after the drone attacks on Saudi oil infrastructure that knocked a sizeable amount of production ofﬂine for a few weeks in September. Prices brieﬂy breached the $60 upper bound at the time of the event, but quickly fell again as Saudi production rapidly came back on line. The past quarter saw an average WTI crude price of $56.44, down roughly 6% from the previous quarter. Compared to last year, prices were a whopping $13/bbl (19%) lower. Recall that last year, markets were rallying as OPEC cuts stabilized markets, with a turning point in late October. This year, any October surprise is likely to be mild, though the $48.20 average in Q3 2017 suggests prices could still have room to fall if markets continue weakening.

Quarterly WTI Crude Prices

Quarterly Diesel Prices

Source: New York Mercantile Exchange (NYMEX)

Diesel prices have been relatively ﬂat since the beginning of 2018. Diesel ﬁnished Q3 at an average price of $1.89, though within the quarter prices ranged from $1.75 to $2.08. Compared to Q2, the third quarter was down 9 cents, a moderate 5% drop. Relative to the rapid build-up of prices last year in Q3, consumers received a bargain this year with prices generally averaging below $2/gal at the wholesale level.

Source: New York Mercantile Exchange (NYMEX)

Contrasted with diesel’s stability, gasoline prices have been on a rollercoaster. Since plummeting in Q4 of 2018 and Q1 2019 to $1.59, we saw a summer rebound in Q2 to $1.94. Q3 saw an average price of $1.73 – down 21 cents from Q2 and down 33 cents from last year. Gasoline prices are highly seasonal – summer gasoline prices are higher because product specifications are more stringent. Each spring, prices quickly springboard higher, so Q2 nearly always brings the highest prices of the year. As gasoline flips to non-summer formulations, prices fall in Q3. Last year, the difference was minimal; this year, prices are significantly lower than their summer levels. •

Quarterly Gasoline Prices

Source: New York Mercantile Exchange (NYMEX)

Overview

Rack-to-Retail Spreads

Gasoline Rack-to-Retail Spreads

Rack-to-retail spreads in the third quarter dropped lower again after rocketing higher over the summer. Rack-to-retail spreads tend to have an inverse relationship with prices – rising prices cause spreads to narrow, while falling prices cause wider spreads. For fuel buyers, rack-to-retail spreads represent the relative savings offered by procuring bulk fuel instead of retail fuel. Companies buying fuel at gas stations and truck stops can save, on average, 34 cents on diesel fuel and 16 cents on gasoline by converting to bulk fuel economics, assuming they have the volume and logistics patterns to facilitate bulk fueling.

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

Diesel Rack-to-Retail Spreads

A year ago, rack-to-retail spreads skyrocketed while wholesale fuel prices took a nosedive, falling over ﬁfty cents in just a few months. In spring of this year, spreads rose once again – peaking in June at 30 cents and 60 cents for gasoline and diesel prices, respectively. Since then, spreads have narrowed. In Q3, rack-to-retail spreads were at very low levels, beneﬁtting retail fuel buyers. Gasoline spreads fell as low as 8 cents, though the average spread in Q3 was still three cents higher than the three-year average. Diesel spreads averaged 43 cents, reaching a low point of 28 cents in mid-September. •

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

ECONOMY & DEMAND

The global economy continues to demonstrate signs of weakness, and even the US is beginning to succumb to the pressure. In mid-August, markets experienced a phenomenon that has historically been a reliable leading indicator of recession: an inversion of the US Treasury Bond yield curve.

Historical Yield Curve Inversions

A bond yield curve inversion occurs when interest rates on 10-year treasury bonds fall lower than 2-year bond yields. Normally, longer-term bonds generate higher interest rates. When yields are inverted, it signals a lack of investor conﬁdence over the next two years and higher demand for more stable short-term bond yields. On average, these types of inversions precede a recession by 22 months. Yield inversions have been a reliable indicator for over sixty years. The last yield curve inversion occurred in 2005,preceding the Great Recession in 2007. The most recent inversion was short-lived though, lasting just a few days, leaving markets to wonder whether any meaningful impact will arise. Even if the inversion is a bad omen, the US economy likely has over a year of growth before the next recession occurs.

cost as high as $450 billion if the US and China continue their escalations. Others argue the trade war is a necessary evil, one which will pay dividends for decades by forcing China to level the playing ﬁeld for US businesses in China.

The US-China trade war is regarded as one of the largest detractors from global growth in 2019, straining both US and Chinese companies. But economists are still debating what cost the trade war might impose on global growth. Moody’s Analytics suggests that as many as 450,000 jobs could be destroyed in the US due to the trade war, with GDP reduced by 0.3% ($58 billion). Earlier this year, the IMF estimated a global

America’s stricter trade policy, though generally targeted at just China and Europe, has a ripple effect on the global economy. Many developing countries rely on demand in these three economies, so slower growth echoes around the world. For instance, East Asian countries such as Taiwan, Vietnam, Malaysia and Thailand each have 5% or more of their total GDP tied to China’s economy; Mexico and Costa Rica are heavily reliant on the US economy. Even if the US and China can weather the economic malaise, other countries may not be able to avert recession.

Source: Federal Reserve Bank of St. Louis

Economy & Demand

Selected Economies’ Exposure to Final Demand from China, the US, and Europe

Supporting US growth has been strong consumer spending and housing demand early in Q3. Consumer spending makes up 70% of the US economy, so changes in spending can have large implications for the economy. Strong growth in consumer spending in Q2 gave way to very low growth in Q3, though the overall trend is supportive. Business equipment spending and payroll growth were limited, and exports and manufacturing numbers slipped early in the quarter.

Note: Latest available data is as of 2015. Source: UN Department of Economic and Social Affairs

Given concerns about global conditions, countries around the world are using their monetary policy to inﬂuence growth. The Council on Foreign Relations maintains a Global Monetary Policy Tracker, which shows a general global bias towards easing monetary policy. This generally takes the form of cutting interest rates and/or quantitative easing, which injects cash into domestic markets.

Looking ahead, consumer sentiment is weakening and experienced one of the largest monthly downturns since 2012 this past August, a bad omen for future spending. Consumer sentiment reﬂects how optimistic consumers are currently, so the dip could herald declining consumer spending in the future.

Consumer Sentiment Index

Easing is common during and following a recession, but after 2008 countries maintained their bias towards easing until 2015, when markets finally started hiking their interest rates. This hawkish monetary approach lasted until May of this year, when central banks began easing again. In the US, the Federal Reserve mirrored this approach, raising interest rates slowly in 2017-18 but cutting rates in July and September of this year. While forward indications present an ominous view for economic growth, near-term indicators remain strong, especially within the US. US GDP in Q2 was projected to have been 2.0%, a slowdown from the first quarter but still relatively strong. For context, the average GDP growth rate since the Great Recession a decade ago has been 2.3%. Estimates from the Reserve Bank of Atlanta point towards a Q3 GDP growth level of roughly 2.1% as of the end of September, though the official numbers won’t be reported until November.

Source: University of Michigan

For now, though, consumers shouldn’t feel too worried. Unemployment remained at record lows in Q3, demonstrating the resilience of the US economy. Low unemployment is pushing incomes higher, as supply of workers is unable to keep up with strong job demand. Wages rose 0.1% in July, and picked up another 0.4% in August. •

US GDP Growth

US Unemployment Rate

Source: US Federal Reserve Bank of St. Louis

Source: US Bureau of Labor Statistics

Economy & Demand

Fuel Demand The EIA has dropped its forecasted oil demand several times throughout the year, and in September the agency dropped 2019 growth projections to just 0.9 MMbpd, slower than the 1.3 MMbpd growth seen in 2018. Baked into the EIA’s assumption is slowing oil-weighted GDP, which gives more weight to heavy oil-consuming economies. The oil-weighted GDP slowdown comes as the entire global economy weakens and braces for slow growth over the next year. In the US, liquid fuel consumption is expected to see little change year-over-year despite robust gasoline demand this summer. In fact, total gasoline demand is expected to be slightly lower, as is diesel demand, with jet fuel and hydrocarbon gas liquids as the sole products in higher demand this year. Looking ahead to 2020, demand will begin rising faster, with ﬂat gasoline demand and material diesel and jet fuel gains.

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

With summer driving season now in the rear-view mirror, gasoline demand is expected to taper off as we head into the end of the year. By mid-September, weekly gasoline demand had dipped below 9 MMbpd for the ﬁrst time since February, signaling a return to anemic winter demand. Diesel demand, on the other hand, has remained quite close to average levels throughout the summer. Back in March, diesel demand reached a monthly record high, and three months before that diesel hit its highest level in ﬁfteen years. Over the summer, though, diesel demand remained relatively constrained between 3.5 – 4.5 MMbpd, in line with normal activity. With winter’s heating oil demand and IMO 2020 around the corner, though, it will be interesting to see how distillate demand performs in the months ahead. •

US Diesel Demand

Source: Energy Information Administration (EIA)

F U N D A M E N TA L S

The third quarter of the year proved relatively unremarkable from a fundamental’s standpoint. While many headlines rocked markets in one way or another, underlying trends in supply and demand generally followed seasonal standards. At a macro level, global inventories remained roughly ﬂat throughout 2019, a marked change from the severe oversupply late in 2018. While stories of weak economic growth might lead to the assumption that demand is slow, oil demand in reality continues marching higher each quarter. What’s changed is supply growth, which has been strongly moderated by OPEC restraint. •

World Liquid Fuels Production and Consumption Balance

Inventories Crude inventory levels were unremarkable in Q3, falling quickly back towards historical levels after rising close to seasonal highs in Q2. Crude oil markets typically peak around March or April, falling throughout the summer before restocking in the fall. Based on that trend, October will be very important for supplies throughout the winter. This year brought an inventory anomaly. Inventories kept rising clear through June rather than stopping in April, peaking at a whopping 485 million barrels, 40 million barrels above the seasonal average for that time of year. Since then, markets have drawn down rapidly. In the last few weeks of Q3, inventories have been slightly below the ﬁveyear average.

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

Markets are now at a point when crude inventories typically begin rising again. Given how late in the spring inventory builds pushed, it will be interesting to see if stocks revert to their normal patterns or if crude’s withdrawal season extends as late as the injection season. The former scenario would help keep prices moderated this winter, while

Fundamentals the latter could present some tough challenges as the industry prepares for IMO 2020. Keep your eyes on the EIA inventory reports in Q4 – they may prove particularly inﬂuential for the next year of fuel prices.

Crude Stocks 5-Yr Range

Fuel inventories have both diverged from normal seasonal patterns, though in opposite directions. Gasoline inventories, which typically fall from May through September, remained relatively ﬂat throughout the summer. Stocks began July at 229.2 million barrels, and by late September had surprisingly increased slightly to 230.0 million barrels. Typically, inventories fall 6 million barrels or so over this period, demonstrating how strong gasoline production has been throughout the summer.

Gasoline Inventories 5-Yr Range

Source: Energy Information Administration (EIA)

Crude inventories tend to have a very strong correlation with oil prices. The tighter supply becomes, the higher prices will rise. However, the relationship is not 1:1; demand must play a factor. For that reason, markets closely monitor crude days of supply to see how tight markets truly are.

Source: Energy Information Administration (EIA)

In Q3, crude days of supply began creeping lower as inventories fell. This is seasonally normal – inventories draw down during the summer and summer gasoline demand boosts the need for crude oil. While Q2 2019 saw 28 days of supply on average, Q3 averaged just 25 days of supply. Surprisingly, despite crude supplies being tighter in Q3, prices were still lower this past quarter. Direction of inventories and demand outlooks must be considered. Inventories were falling from historically high levels earlier in the year, giving markets a bit more security than they may have felt if inventories had been tight all year. Demand prospects also play a part – if demand falls in the future, days of supply could rise even if inventories remain ﬂat. Oil prices are lower than crude days of supply would suggest they ought to be. A key contributor is likely demand concerns – markets are pricing in weak future demand rather than using current demand trends, leading to a lower oil valuation. According to historical patterns, WTI crude prices should range anywhere from $50-$70 at current supply levels, putting markets at the low end of the range. Should economic concerns subside, expect prices to move closer to the middle/high end of the range.

Unlike gasoline, diesel inventories moved signiﬁcantly lower than the ﬁve-year average during Q3. Starting the quarter in line with the average, diesel inventories quickly began dropping, and seasonal trends would indicate further inventory draws in the coming months. By the end of Q3, diesel inventories were 131 million barrels, 11 million barrels below the average for that same time of year. •

Crude Days of Supply

Diesel Inventories 5-Yr Range

Source: Energy Information Administration (EIA)

Fundamentals

Reﬁnery Utilization

Refinery activity remained close to seasonal patterns throughout Q3, a break from lower utilization earlier in the year. Coming out of the winter season, refineries were experiencing challenges around the country, ranging from maintenance concerns on the West Coast to flooding in the Midwest. With just a few exceptions, those refinery issues righted themselves for the latter half of the year. The trend reversal shows the power of markets to influence refiner activity. In Q2, 3:2:1 Crack Spreads, which represent the margin a refiner can make by converting crude into gasoline and diesel, were above Q2 2018 levels, a market reaction to reduced fuel output. This quarter, however, spreads fell to trading almost exactly in line with last year’s average.

Reﬁnery Utilization 5-Yr Range

Source: Energy Information Administration (EIA), Modiﬁed to exclude 2017 reﬁning disruption from Hurricane Harvey

3:2:1 Crack Spreads

As the quarter closed, refinery utilization fell slightly below the normal range amid Gulf Coast flooding caused by Tropical Storm Imelda, which brought recordbreaking flooding in parts of southeast Texas. Even with the dip, though, utilization was within expected constraints. Looking ahead to Q4 and 2020, expect IMO 2020 to keep steady upward pressure on refinery utilization as higher crack spreads incentivize more output. •

Source: Energy Information Administration (EIA)

Fundamentals

Crude Oil Production Among the largest oil producers in the world, America is unique in having market-driven production. Saudi Arabia and Russia both control their oil reserves through direct government intervention, but American production can swing based on prices. That peculiarity makes it particularly interesting that production has continued rising despite lower oil prices. Shale oil production has made steady gains for the last several years, with production rising from 4.9 MMbpd at the beginning of 2019 to 5.45 MMbpd in September. Note this is only shale reserves; conventional oil fields and offshore fields are excluded. Shales producers can continue pushing output higher and higher, even amid a low-$50 environment. While shale production has risen, though, rig counts have been falling for months. Total rig counts deployed have fallen from a peak of 958 rigs in November 2018 down to just 821 in August. Investors are putting pressure on producers to limit their spending, leading many to cut back on drilling new rigs. As companies deploy fewer rigs, they’re getting better at tapping into high-impact wells that increase output per rig. Although total US crude production has moderated over the last two months, it appears shale producers are poised to continue growing their output even with crude prices hovering in the low$50s. Smarter technology and more accurate drilling are increasing returns while rig count deployments drop. OPEC has signaled their intent to balance global inventories in light of American crude oil growth. But as OPEC tamps down their fields, American producers have been quick to fill in the gap. American production, previously limited by pipeline and export capacity, is quickly pushing towards a maximum capacity, with output estimated to be 14 MMbpd by 2030 including shale, conventional and offshore oil. As long as oil prices remain at profitable levels – currently considered to be around $50 per barrel, though that could fall even lower with technology improvements – expect US producers to continue finding new ways to add supply to the market. •

US Shale Output & Rig Counts

Source: Energy Information Administration (EIA)

Fundamentals

Imports & Exports

US Crude Imports and Exports

As America becomes a more prolific supplier of crude oil, producers must continuously seek new markets for this new, abundant product. Increasingly, suppliers are finding ways to send their oil overseas to be used in foreign markets. Since exports were legalized in 2015, crude exports have risen at historic rates, accounting for a majority of global supply growth. Eighteen months after export legalization, Source: Energy Information Administration (EIA) exports were barely able to move above 1 MMbpd. Today, crude crude oil here to be processed by our sophisticated refineries, and the resulting fuel exports are well above 3 MMbpd on average, approaching 4 MMbpd. products are in turn exported once again. Across all petroleum products, imports and exports are very close to being balanced; however, as long as America remains the At the same time, imports of crude oil have been steadily falling, dominant world refiner, we’ll continue to see more crude imports than exports. yet remain stubbornly high. In early 2017, crude imports averaged around 8 MMbpd; today they’ve only fallen to around 7 MMbpd. As US exports continue rising, finding a reliable destination has been challenging. The reason crude imports remain so stubbornly high is that the US is Canada has been the largest destination by far, since it’s easy to ship product across generally known as the world’s refining capital. Countries send their the border.

Fundamentals

In 2018, China was the second large recipient by a wide margin. However, the trade war has caused exports to collapse by 250 kbpd, taking China from #2 to #7, with further drops possible if the trade war is not resolved.

US Crude Oil Exports Top Destinations

Other Asian countries have made up for the loss, though. While exports to China fell almost 250 kbpd, exports to South Korea rocketed up by 278 kbpd, completely offsetting the loss. India also increased purchases of US crude by 150 kbpd, and Taiwan absorbed another 100 kbpd. Oil is a fungible, international commodity. When China stops purchasing American oil, global markets simply shift oil flows to accommodate the constraint in economic ways. China’s decision caused American crude prices to drop, which makes it more attractive for South Korea and India to buy more – increasing demand to bring prices higher again. With South Korea and India buying more from the US, Middle Eastern suppliers look to China to buy more – a natural pairing, since China now must source an extra 250 kbpd from other nations. This shifting of oil flows may not be as economical as the old trade patterns, but the price impact is vastly lower than if Chinese refiners had to pay the hefty tariffs on oil. • 21

Source: Energy Information Administration (EIA), Petroleum Supply Monthly

REGIONAL VIEWS Dan Luther, Director, Supply Optimization See his bio, page 42

PADD 1A & B East Coast

Distillates will be in strong demand this autumn/winter heating season, and the PES refinery closure in the Northeast creates cause for supply concerns. European refineries will be less inclined to export diesel to the U.S. given higher domestic demand, so Northeast buyers are set to battle Latin American purch-asers as the highest bidder for Gulf Coast refined products. While Gulf Coast refiners should meet the call for more supply, the loss of local producer PES could lead to short-term disruptions, especially if cold spikes promote higher demand. Watch for higher distillate prices relative to NYMEX futures during heating season, especially with any unseasonably cold weather. •

Philadelphia Reﬁnery Winds Down after June Explosion

Laurel Pipeline Bidirectional Settlement

Following the June 21st explosion and fire at the 335,000 barrel per day Philadelphia Energy Solutions (PES) refinery, Northeast market participants began the third quarter shoring up supply as the plant wound down production. Unsurprisingly, stocks of finished motor fuels dipped after the incident on lower supply. Of note, Central Atlantic gasoline inventories fell to their lowest July levels since 2015 and lowest overall volume since the end of 2017.

Following the closure of the PES refinery, Buckeye’s Laurel Pipeline reached an agreement with opposition parties to allow bidirectional service between Pittsburgh and Altoona as soon as October 1. The settlement would guarantee capacity into Western Pennsylvania for east-to-west shippers during each 10-day pipeline cycle while opening up west-to-east service into the Altoona market for the first time. The agreement ends a three-year battle fought before the Pennsylvania Utility Commission and Federal Energy Regulatory Commission between Buckeye and the East Coast refiners and large Pennsylvania retailers who opposed west-to-east shipments.

Weekly Central Atlantic Ending Stocks of Gasoline

The agreement is a win for Midwestern producers, who now may increase their advantaged fuel output after having long sought an outlet for more reﬁned products in Central and Eastern Pennsylvania. On that note, the settlement provides that if shipments from PES or a successor company are nonexistent beyond 2022, Buckeye can seek to use the pipeline to exclusively ship west-to-east through Central Pennsylvania. •

Source: Energy Information Administration (EIA)

In August, regional inventories rebounded as imports increased and pipeline shipments from the Gulf Coast reached the Northeast. This will be the new normal in the area as the future of the PES refinery remains uncertain. Reportedly, there’s been little interest from buyers looking to operate the plant as a traditional oil refinery given the extent of the damage and historically disadvantaged crude economics. Instead, interest has come from parties looking to operate the plant only as a terminal or, in one case, from a bioenergy producer to manufacture drop-in renewable fuels. While the market was able to adapt quickly to cover lost production from PES this summer, the winter may prove more challenging for diesel buyers during the seasonal heating season. Many Pennsylvania-based heating oil buyers relied on PES supply, as did buyers in upstate New York and New Jersey. As a result, area purchasers will rely heavily on additional capacity from US Gulf Coast refiners via the Colonial Pipeline, elevating area diesel prices this winter. • 22

Regional Views

Gabe Aucar, Senior Supply Manager See his bio, page 42

PADD 1C Lower East Coast PADD 3 Gulf Coast

This quarter started off slow but had plenty of headlines driving markets towards the latter part. Gulf Coast basis remained strong given the many factors impacting GC refineries. Exxon Beaumont shut some units due to flooding in the Houston area, as did Valero and Motiva’s Port Arthur refineries. Along with seasonally low diesel inventory levels, we should anticipate an interesting winter ahead of IMO 2020. Demand continues to be very healthy on the East Coast, and with the PES refinery now out of the picture, it will be interesting to see whether or not imports from Europe begin rising. The Farmers’ Almanac is predicting a cold and wet winter for the Northeast. If this holds true, then combined with the PES refinery outage and IMO 2020, the Southeast could see regional tightness in diesel supplies. Price volatility could be a significant issue for consumers, and many have already sought a fixed fuel price to avoid unwanted financial strain. •

USGC ULSD Export Demand to Brazil Surges

processing plant. This outage, combined with domestic prices set by Petrobras that were higher than the international market, has created an open arbitrage to the country.

Brazilian demand for US Gulf Coast diesel in Q3 – spurred by a reﬁnery outage and state-run pricing — drained supplies and pushed spot differentials past a one-month high. Brazil sources the vast majority of its diesel imports from the US, with exports to the country averaging 168 kbpd this year, up from 133 kbpd in 2018, according to US EIA data. Petrobras, Brazil's state-led oil company, recently announced it would shut Reﬁnaria Duque de Caxias, otherwise known as Reduc, for a month beginning mid-August to perform maintenance on the 239 kbpd 23

With minimal slowdown in the USGC refinery complex, refiners have had to find outlets to take their large supply. The Gulf Coast makes too much ULSD and there is not enough demand in the US, so they have no choice but to export it. This also comes at a time when Mexico refined products imports are moving away from US sellers to Chinese sellers. It is also important to note that this export activity has been partly responsible for the current 5-year low distillate inventory levels in the Gulf Coast, which may lead to higher prices as we move into the colder weather months on the eastern coast. •

Regional Views

Back Loaded Hurricane Season The real Atlantic hurricane season is about to kick off. The hurricane season runs from June 1 to the end of November, but late-August through early-October, dubbed “the season within a season,” is the most dangerous and active time for storms to develop in the Atlantic. So far only a few named storms have emerged in the Atlantic this year, and only one came during the early hurricane season: Hurricane Barry, which looped through the Gulf of Mexico in July. That’s the fewest named storms between June 1 and August 15 since 1999. Once they do start rolling, though, look out. There is a deep pool of warm water tucked into the Gulf of Mexico, across the western Caribbean and along the US Southeast coastline and any storm that reaches those areas could explode in power. Hurricane Dorian was the ﬁrst major storm to rattle markets, though the storm’s path eventually became a non-issue for US oil markets despite devastation in the Bahamas. •

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Regional Views

Kinder Morgan Bulks Up Houston Ship Channel Reﬁned Product

Kinder Morgan will invest over $170 million to enhance refined product and natural gas liquids blending capabilities at its two key US Gulf Coast export facilities, supported in part by long-term contracts with a major refiner and midstream company. The projects will increase efficiency, add product liquidity, and enhance blending capabilities at its Pasadena and Galena Park terminals, part of its best-in-class refined products storage hub on the Houston Ship Channel. About 80% of all US refined product exports leave via USGC ports, and USGC refiners depend on refined product exports to derive the most economic benefit from processing local light, sweet crude from the Permian and Eagle Ford.

Kinder Morgan's Pasadena, Texas facility gets the lion share of announced project spending. The company will invest $125 million in the terminal and nearby Jefferson Street Truck Rack to increase ﬂow rates on inbound pipeline connections to the facility and outbound dock lines, signiﬁcantly reducing vessel load times and expanding effective dock capacity. As part of the project, Kinder Morgan will modify 10 existing tanks for butane blending and vapor combustion capabilities, with the possibility to increase that to 25 tanks. Kinder Morgan will also increase current MTBE storage and blending capability while adding a dedicated inbound connection to the terminal enhancing customers' blendstock optionality and liquidity.

Currently, Kinder Morgan's Houston Ship Channel facilities consist of • 10 Ship Docks • 38 Barge Spots • 20 Inbound Pipelines connecting to reﬁneries and chemical plants • 15 Outbound Pipelines • 14 Lines crossing the Houston Ship Channel providing connection between the two terminal sites • 43 Million Barrels of Storage

The improvements are supported by a long-term contract for 2 million barrels of refined petroleum product storage with a major refiner, which Kinder Morgan has not identified. Refineries near Kinder Morgan's Pasadena terminal include Valero's 205 kbpd Houston plant, LyondellBasell's 264 kbpd Houston plant, and Chevron's recently purchased 112 kbpd Pasadena refinery, directly adjacent to Kinder Morgan's terminal. Integrated major Chevron purchased the Pasadena refinery to amplify the benefits of its large exploration footprint in the Permian Basin. •

Regional Views

Dan Luther, Director, Supply Optimization See his bio, page 42

PADD 2 Midwest

The big focus throughout the Midwest in the fourth quarter will be on agricultural demand, or lack thereof, during the fall harvest season. The spring saw historic rainfall in many Midwestern states which hindered planting; as a result, there may be less acreage to harvest in the fall and thus lower than normal diesel demand. Accordingly, the forward curve for diesel prices in the Chicago trading hub points toward weaker regional diesel prices for the harvest season. That said, buyers should keep an eye on reﬁnery maintenance with Flint Hills (339,000 bpd in Pine Bend, MN); Husky (175,000 bpd in Lima, OH); and BP (440,000 bpd in Whiting, IN) all performing work. •

Toledo Refinery Issues Boost Prices A collection of Q3 refinery hiccups in Toledo caused higher prices for refined products in the Ohio Valley region while lending support to Chicago basis. The 165,000 barrel per day BP-Husky Energy Toledo refinery stumbled into the quarter with a two-week delayed restart following several months of maintenance. The refinery was supposed to be at full production around Independence Day but instead came online closer to mid-July. Reports estimate lost production from the full maintenance period at roughly 2.7 million barrels of gasoline and 2.4 million barrels of distillate. Shortly thereafter, on July 19, the plant’s hydrocracker, which yields nearly sulfur-free distillate and gasoline components, was deeply reduced for unplanned repairs. The unit wasn’t fully operational until mid-August. Around the same time, a fire occurred July 30 at PBF’s 188,000 bpd Toledo refinery, forcing a two-week shutdown of one of the plant’s two crude units. A crude unit is part of the initial stage of refining that processes crude into partially refined products. In late August the FCC, which yields mostly gasoline components and some distillate, was shut for unplanned repairs with the outage reportedly lasting five days. The effect on regional prices and supply was noticeable as netbacks – the difference between local market pricing and regional trading hub values – increased through much of the area, with Ohio feeling the biggest pain.

Ohio Gas and Diesel Netbacks

Government-Mandated Canadian Crude Curtailments Extended The Province of Alberta continues setting energy policy that inﬂuences reﬁned products prices throughout the Midwestern United States. On January 1, 2019 the Albertan government mandated a 325,000 barrel per day production cut in the province’s oil sands. At the time, Canadian crude output far exceeded transport capacity out of the region, leading to a plunge in benchmark Western Canadian Select (WCS) crude prices relative to other grades. Highlighting the extreme takeaway issues, at its widest WCS crude traded at a $52/bbl discount to WTI crude oil in October 2018. Of note when setting the August cap, the government extended the sunset date of the oil curtailment program from the end of this year through the end of 2020.

Source: Energy Information Administration (EIA)

Diesel netbacks were particularly strong during a time of year which is seasonally oversupplied. Reﬁneries maximize utilization to capture gasoline demand, and plants perform little planned maintenance. Market participants will keep an eye on Ohio into the fourth quarter as Husky prepares to fully shut their 175,000 bpd Lima reﬁnery, a key supplier to the region. • 26

Many Midwestern refineries have retooled over the last several years to run price-competitive heavy Canadian crude oil. When heavy crudes trade at steep discounts to alternatives, plants are incentivized to maximize production and flood the market with cheap fuel supplies, pushing prices lower. Canada’s production cuts have dramatically narrowed the spread between Canadian crude and American WTI crude, limiting the incentive to maximize refinery utilization rates. •

Regional Views

Nate Kovacevich, Senior Supply Manager See his bio, page 42

PADD 4 Rocky Mountain

Denver gasoline and diesel prices rallied in the middle of the quarter on stronger demand, and with reﬁnery downtime on the horizon, we anticipate prices to be supported through the end of October. Delayed planting in the Midwest should mean higher demand in October during harvest, which could mean further support for diesel prices. On the gasoline front, we anticipate gasoline prices in the Mountain region following normal seasonal tendencies, so expect a move lower as we head into the fall timeframe. The lower supply of gasoline should be met by weaker demand as we move farther away from the summer driving season. •

Mountain Refineries Running at Higher Levels to Close Out the Summer The Mountain region is an interesting market right now as refineries continue operating at or above 100% nameplate capacity. In fact, at the end of August the EIA reported weekly PADD 4 refining utilization was at 102.1%. This compares to last year’s value of roughly 90%. The maintenance schedule in the region has been on the lighter side so far this year, but that will change in early September when HollyFrontier begins a turnaround at its 50 kbpd Cheyenne, WY, refinery, with plans to 27

resume full operation in the last week of October. That should provide support to a market already experiencing some tightness. Flows from northern Texas have been impacted by refinery issues and product shortages, dampening flows to Denver despite very strong summer refinery utilization in the Mountain region. Planned downtime at P66’s Borger refinery in September should also keep that market pretty tight, further limiting Denver supplies. •

Regional Views

Sara Bonario, Supply Director See her bio, page 42

PADD 5 West Coast

Planned and unplanned refinery outages continued to plague West Coast fuel markets during the second and third quarters of 2019, causing supply outages and price spikes at the terminal level. Repetitive issues and maintenance performed on the region’s pipeline system also contributed to erratic and unpredictable delivery schedules in numerous markets. The combination of these market conditions created an environment of higher netbacks than seasonally typical, especially for diesel during the warm summer months when refiners’ focus tends to be gasoline production. Refinery utilization rates across the West have been maintained at just over 96% despite the challenges to unit reliability. Above average temperatures in the region as well as strong agriculture demand are expected to continue this fall, supporting strong diesel demand for cooling purposes and the coming harvest. •

Trump Rolls Back California Emissions Standards The California Air Resource Board announced in July 2019 that conversations were progressing with automakers that would tighten vehicle emission standards. Speciﬁcally, BMW, Ford, Honda and Volkswagen have agreed in principal to support standards to reach an average of +50 mpg by 2026.Despite the announcement, don’t start planning on reduced fuel demand just yet. In September, President Trump announced that his administration would be rolling back waivers that allowed states to set stricter emissions standards, claiming the strict standards made vehicles less safe and more expensive. Because automotive companies cannot make separate models for California and the rest of the country, the 28

Trump administration argues that California’s standard is functionally trumping federal policies. The Federal Government is claiming authority to set emissions standards as part of the Clean Air Act, which makes it illegal for states to set their own fuel economy standards without a waiver. California and like-minded states (Including all states in the Paciﬁc Northwest) follow the standards set by California and contend they have the right to enact standards more stringent than federal guidelines. So far, two dozen states, including California, have ﬁled suit against the federal government to protest the decision. This one is likely to be resolved in court over the coming months.•

Regional Views

Nate Kovacevich, Senior Supply Manager See his bio, page 42

CANADA

Light at the End of the Tunnel Getting Brighter for Canadian Crude Prices There’s been a lot of news recently on the Canadian oil front that has helped squeeze the price gap between American West Texas Intermediate (WTI) and the Western Canadian Select crude oil contract. The Albertan government agreed to extend the production cuts imposed on the oil industry until the end of 2020, counteracting the pipeline capacity shortage that has weighed on oil producers ability to move oil sands crude to reﬁners. Just last year, Western Canadian Select was trading at more than a $40 discount to WTI. This spread narrowed quickly after the production cuts, and by the end of August the spread is trading just below $12 versus the US counterpart.

Furthermore, the Canadian government announced the resumption of work on its stalled Trans Mountain oil pipeline expansion. While this probably won’t cause a huge jump in Western Canadian Select prices anytime soon, it should help to keep a floor on that discount versus WTI. If all goes well, and no further delays surface in the construction, the project is expected to finish in mid-2022. The Trans Mountain pipeline will deliver nearly 600 kbpd from Alberta to the West Coast. From there, the product will likely load on a vessel and head to China. Remember, this is the same pipeline system that the Federal government purchased from Kinder Morgan in 2018 for $4.5 billion. They have yet to find a buyer for the pipeline, but perhaps resumed construction make the pipeline assets more attractive to potential buyers. •

Keystone XL One Step Closer to Approval This quarter, a Nebraska court gave the green light approving the alternative route for the Keystone XL pipeline, lifting one of the last outstanding legal issues plaguing the controversial pipeline, which has been in limbo for the past 10 years. The Keystone XL has experienced severe pushback from the environmental and landowner community in the US, which delayed construction of the 830,000 barrel pipeline connecting Canadian producers to Texas reﬁners. TC Energy Corp has not updated the cost of the project, but the price tag is expected to be well north of $8 billion. The decision by the Nebraska Supreme Court now means that the Keystone XL has gotten approval from Canada and the three states in the US that would link the Hardisty, Alberta hub to Steele City, Nebraska, where it will link up with existing pipeline infrastructure for movements to the US Gulf Coast. •

A LT E R N AT I V E F U E L S Sara Bonario, Supply Director See her bio, page 42

RENEWABLES

RVO, SRE & BTC ... What Does it Mean For Me? The Renewable Fuel Industry is like many industries, fond and full of various acronyms. This may be difﬁcult to make sense of at ﬁrst glance, but once the acronyms are understood the real work is making heads or tails of the politics and posturing of the various groups impacted by the policies being discussed.

Congressional Volume Target for Renewable Fuel

To begin at the beginning, the US Environmental Protection Agency (EPA) ﬁnalized the Renewable Fuel Standard (RFS) regulations effective September 1, 2007 as required by the Energy Policy Act of 2005. The program was developed to increase the volume of renewable fuel blended into transportation fuel with a speciﬁc target of 36 billion gallons by 2022. The Clean Air Policy was later expanded by the Energy Independence and Security Act (EISA) of 2007 which added requirements to improve vehicle fuel economy and reduce U.S. dependence on petroleum, all while reducing green house gas emissions. The Energy Independence and Security Act (EISA) includes provisions to increase the supply of renewable alternative fuel sources by setting mandatory compliance levels by alternative fuel type (ie, ethanol, biodiesel, etc.) each year. This program is administered by the EPA in consultation with US Department of Agriculture and the Department of Energy.

Source: Environmental Protection Agency (EPA)

Obligated parties must meet these minimum renewable fuel blending requirements or purchase credits known as Renewable Identiﬁcation Numbers (RINs) to comply with their Renewable Volume Obligation (RVO) under the Renewable Fuel Standard (RFS) mandate. In the years since the inception of these programs we have seen tremendous growth in the use of ethanol, biodiesel and other renewable alternatives. We have seen investment in new technologies and a boom in the use of Electric Vehicles.

Example Lifecycle of a Renewable Identiﬁcation Number (RIN)

Source: Environmental Protection Agency (EPA)

Alternative Fuels

Summary of Small Reﬁnery Exemption Decisions Each Compliance Year Compliance Year

Number of Petitions Received

Number of Grants Issued

Number of Denials Issued

Number of Petitions Declared Ineligible or Withdrawn

Number of Pending Petitions

2013 2014 2015 2016 2017 2018

16 13 14 20 34 11

8 8 7 19 29 0

7 5 6 0 0 0

1 0 1 0 0 0

0 0 0 1 5 11 Source: Environmental Protection Agency (EPA)

This progress has not been without bumps and obstacles. The first such obstacle to continued growth is a provision in the RFS which allows the EPA the flexibility to grant small refineries a temporary exemption from their annual Renewable Volume Obligation (RVO) if they can demonstrate that compliance with the RVO will cause the refinery a disproportionate economic hardship. The EPA’s decision to grant an exemption in effect reduces the amount of ethanol obligated parties are required to blend into their fuel or purchase RINs to meet the RVO. The EPA announced on August 9, 2019 that 31 petitions for exemption were to be granted. While this was disappointing for corn farmers (40% of corn produced in the US is used as a feedstock for ethanol), it was not unexpected by the markets which barely responded to the news. The market was not surprised since this number of small refinery exemptions (SREs) granted was in line with the last several years under the Trump administration, but a marked increase compared to those granted under former President Obama. The issue at hand is that the continued granting of these exemptions effectively means that regulated targets cannot be met and therefore are artificial in the minds of renewable fuel producers. Groups such as the American Coalition for Ethanol (ACE) are pushing the EPA to adjust the 2020 RVOs to account for gallons waived by the small refinery exemptions. One OPIS article published in August quoted an ACE representative as saying, "The rubber-stamping of 85 refinery exemptions for the 2016 through 2018 RFS compliance years, without reallocation of the blending obligations, has effectively reduced the RFS by more than 4 billion gallons below statutory volumes." Put another way, the EPA allowed markets to blend 4 billion gallons less than the mandatory required volume, reducing demand for biofuels. Does the cost of compliance with the RFS really impact the financial stability of small refiners? Many would like to know and have even presented lawsuits under the Freedom of Information Act to gain access to the petitions submitted requesting the exemptions. It is the belief of at least one major refiner that granting of exemptions is not warranted. Shell submitted comments to the EPA in August that the refiner’s cost of blending biofuels or purchasing RINs to meet their obligation levels are included in the price of products sold. Therefore, exemption from the program does not avoid a hardship; rather, it grants the small refinery a windfall profit and creates an uneven playing field for larger operations. Small refinery exemption news comes at a time when the renewable fuel industry and producers are facing a breaking point. Ethanol and biodiesel plant closures have become common news. Biodiesel plants are closing and producers are publishing significant losses for 2019. 31

Biodiesel blending into transportation fuel has been economically disadvantaged for many in the industry over the last 20 months in areas not supported by some type of mandate or incentive. This is due in large part to the lack of a standing Blender’s Tax Credit (BTC). This program provides $1.00/gallon tax credit on qualified gallons of pure biodiesel (B100) or Renewable Diesel (RD) produced and used in the blending process. If the BTC is not reinstated soon, it would not be surprising to see news of well-established producers filing for bankruptcy. In conclusion, the lack of consistent and predictable administration of renewable policies under the RFS results in an environment of uncertainty and risk. Businesses cannot plan effectively and deploy capital for new projects such as converting a petroleum production plant into a renewable fuel production plant. Less profitable biodiesel plants and inefficient operations will continue to close. From a macro perspective this is beneficial to the biofuel industry, decreasing competitive pressure for well-established plants. From a consumer perspective, the reduction in supply will result in increased fuel costs in mandated areas (such as California and Minnesota) and no discretionary blending in areas without mandates. Compliance obligations under the RFS will be met by purchasing and retiring RINs, which is a less expensive alternative to investing in expensive product, creating and maintaining inventory positions, and paying for tank maintenance and throughput costs. The political uncertainty around biofuel’s future adds risk and higher complexity for fuel markets, ultimately undercutting the purpose of the Renewable Fuel Standard by reducing biofuel demand in the US. •

Alternative Fuels

Martin Trotter,

SUPPLY:

Pricing & Structuring Analyst

Record LNG Exports

See his bio, page 42

NATURAL GAS

The burgeoning market for US based Liqueﬁed Natural Gas exports continues barreling forward, and along with high exports comes higher deliveries of natural gas feedstocks to export facilities. Between 2013 and 2018, exports of natural gas nearly doubled, ballooning to 3.6 trillion cubic feet. LNG represented around a third of these exports. In July, natural gas intake at LNG facilities reached record levels, averaging around 6 billion cubic feet per day, accounting for 7% of domestic dry production in the time period.

US Natural Gas Feedstock to LNG Export Facilities (January – July 2019)

All indications point towards continued rapid growth, with the US on track to overtake both Australia and Qatar to claim the top spot in as little as 5 years. That’s a crowning accomplishment given that the ﬁrst shipment of LNG out of the United States was merely three and a half years ago. All of this comes with only a portion of the newest liquefaction facilities online. Earlier this year, the ﬁrst train from the Cameron LNG facility in Louisiana came online, along with the second unit in Corpus Christi, Texas. Expectations suggest at least two more units will come online before the end of Q3 2019, counting Freeport beginning in Texas and the delayed Kinder Morgan unit on Elba Island off the coast of Georgia. Elba has 4 units that should follow shortly, with a total capacity of 10 to be put online at a later date. •

Source: U.S. Energy Information Administration, (EIA), Based on OPIS PointLogic Energy

Alternative Fuels

DEMAND:

Heatwave Pushes Power Demand for Natural Gas Mid-July brought a heat wave and extreme humidity through the Midwest and Atlantic regions of the United States. On July 19, hourly demand for electric cooling peaked over 700 gigawatts, approaching a nearly two-year record set on the same day in 2017. Typically, evening demand averages around 400 GW. This peak in electricity sent ripple effects into the corresponding natural gas markets, setting new record there as well. Electric power plants consumed over 44 billion cubic feet of natural gas during the time period. The continued transition from coal to natural gas, coupled with historically low natural gas prices, drove demand upwards. Prior to late July, weather this summer had been relatively mild, which tempered demand, encouraged higher summer injections, and kept prices suppressed. Increased drilling and production has caused excess supplies in the market, also quelling prices. Henry Hub prices had been nearly 20% lower than last summer, with many basis regions operating below these levels. After the heat wave in late July, prices bottomed out before rising nearly 40 cents per dekatherm between early August and the ﬁrst week in September. •

Monthly Henry Hub Natural Gas Spot Prices (1997 – 2019)

Source: U.S. Energy Information Administration, (EIA)

Daily Natural Gas Consumption in Electric Power Sector (June – September)

Source: U.S. Energy Information Administration, (EIA), S&P Global Platts US Power Burn Analytic Report

Alternative Fuels

STORAGE:

Working Gas in Underground Storage Compared with the 5-Year Maximum and Minimum

Despite there being fewer active rigs in the oil producing sector, natural gas production remains high. In addition to low prices and sustained high production, mild weather in early summer dampened demand in the marketplace, incentivizing storage injections. As a result, natural gas storage has seen steady injections over the early summer, reversing two years of below-average storage levels. July beginning inventory clocked in at 2.4 tcf, versus 2.2 during the same period last year. Additionally, net injections through the end of August totaled 551 bcf versus 415 last year. After nearly two years of operating at a storage deﬁcit against the ﬁve-year average, increased production and the mild temperatures have increased injections, bridging the gap that has been looming since withdrawal season 2017. Current estimates peg end of injection season inventories at over 3.7 tcf, which would exceed the previous year by over 15%. •

Source: U.S. Energy Information Administration, (EIA)

VIEWPOINTS By Nikki Booth, Senior Logistics Manager, Carrier Relations

Three Ways to Combat Rising Truck Insurance Rates There have been numerous factors impacting the logistics industry in the last several years. At the forefront are the driver shortage, the ELD Mandate, HOS changes, and a strengthening US economy. Another influence, rarely discussed, is the rise in truck insurance premiums. For logistics companies with truck fleets, insurance costs account for the largest increase in operational costs according to the American Transportation Research Institute (ATRI). Over the last few years, insurance rates for truck fleets have risen 40% since 2013. Regularly assessing insurance costs with deductible levels and crash/liability risks can be a fragile balancing act between managing risk and cost. Unfortunately for truck carriers, there hasn’t been a lot of change with the major insurance companies. Those insurers can afford to be more selective about who to insure and can determine if any additional premiums are required. To keep costs low, transport companies must aim to become a “fleet of choice” to lower insurance premiums. To become a choice customer for insurance companies, fleets should consider three ways to stay ahead.

1 Maintain a Strong Insurance Credit Score Truck ﬂeets need to keep their commercial truck insurance credit score in good standing. The insurance credit score predicts risk, and insurance companies use risk assessment to determine how much premium to charge each company. Insurance companies seek to minimize their own personal risk by assessing companies based on how likely a company is to submit a claim and how large the average claim will be. The greater the risk, the higher the premium that company will have to pay.

with expectations and execution of safety practices will make your company more appealing to insurance companies. Companies should reinforce safety priorities with drivers, be transparent about expectations and accountability, refrain from reckless driving habits (i.e. speeding), and maintain operable truck assets.

3 Monitor FMCSA Carrier History Trucking ﬂeets should pay close attention to their crash history and safety ratings on FMCSA. FMCSA’s Compliance, Safety, Accountability (CSA) Program is a data-driven safety compliance and enforcement program designed to improve safety and prevent commercial motor vehicle crashes, injuries, and fatalities. CSA utilizes 7 categories: • Unsafe Driving • Crash Indicator • Hours-of-Service Compliance • Vehicle Maintenance • Controlled Substances/Alcohol • Hazardous Materials Compliance • Driver Fitness Data collected through roadside inspections, crash reports, investigations and other violations from the previous 12 months are used to rank carriers. The higher the number in the rank, the worse the carrier’s CSA score, and the higher their insurance premiums are prone to be. Commercial insurance premiums are an unpredictable and complex cost center for motor truck carriers. Improving insurance credit scores, reiterating standard safety practices and maintaining a low CSA record are three actionable ways to minimize rising insurance premiums for trucks ﬂeets. • Nikki A. Booth Senior Logistics Manager, Carrier Relations

2 Instill a Robust Safety Program Companies should minimize risk by instilling a sound, repetitious safety program for their ﬂeet. Recruiting well, planning, and being consistent 35

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 tohandle vendor procurement, address logistical concerns, and identify cost-saving solutions for Mansﬁeld Energy and our customers. Nikki has several years’ experience in supply chain management, with the majority of that focused on energy transportation and logistics.

Viewpoints By Alan Apthorp, Corporate Marketing Supervisor

2020 Fuel Price Forecast

Prepare Your Budget

Crude Oil Target: $59.50* Diesel Target: $2.20** Gasoline Target: $1.97***

EIA Crude Prices Forecast

Overview

with EIA’s 95% Conﬁdence Interval

The past year has been a tumultuous ride for oil prices, with 2019 crude prices ranging from $44.35 to $66.60 – a 50% increase. But since reaching a high point in April, prices have seen a sharp drop. Looking ahead to 2020, volatility is expected to continue as economic forces, OPEC, and IMO 2020 compete to influence prices. Given the uncertainty around many of these factors, 2020 fuel prices are difficult to forecast with confidence. Prices will largely continue within recent trading ranges, though which end of the range is a question yet to be answered.

Source: U.S. Energy Information Administration, (EIA) Short-Term Energy Outlook, August 2019, and CME Group

Viewpoints

Market Overview The coming year of fuel prices is highly dependent on a few macro trends, any of which could cause signiﬁcant volatility for prices. Collectively, they make the future quite difﬁcult to forecast. While some of these trends have been in play for some time, others will be new entering the 2020 landscape.

Continuing Trends

3 OPEC Production Cuts

1 US-Iran Tensions

Since 2017, OPEC has been balancing oil prices by limiting the oil production of member nations. While history has seen many similar agreements fall apart, OPEC has thus far demonstrated steady resolve to keep oil prices higher.

On-going tensions between the United States and Iran have become one of the dominant bullish factors for oil prices. Iran’s proximity to the Strait of Hormuz, through which 20% of the world’s oil passes daily, adds high risk for oil prices, especially since Iran has threatened to shut down the Strait in the past. Missiles have been launched, drones shot down, and oil tankers seized.

While no formal OPEC price target exists, many analysts have noted a preference for international oil prices to remain around $70/bbl (for WTI, that’s roughly $65/bbl). Although a point may come when OPEC decides it cannot cut any further, so far the group (particularly Saudi Arabia) has shown the remarkable ability to keep cutting to maintain market balance.

4 US-China Trade War The US-China trade war has been an ongoing source of trouble for the global economy. Major institutions such as the World Bank and the IMF consider trade to be one of the leading threats to global growth in 2020, which has direct implications for oil demand and prices. While a shutdown of the Strait of Hormuz would likely be brief, it could send shockwaves through fuel markets and potentially launch prices above $100/bbl temporarily. With neither Trump nor Iran willing to budge, a resolution is not expected in the near-term. On the ﬂip side, if a resolution is reached, Iran could unleash its vast repository of fuel inventory and production capacity on global markets, causing crude to sink to $40/bbl or below.

2 Venezuela Sanctions Close in line with Iran tensions, America’s relationship with Venezuela has been rocky at best. Many Western nations have declared Venezuela’s sitting President Maduro illegitimate, throwing their backing behind National Assembly Leader Juan Guiado. Here again, little progress is expected in the coming year. Venezuela’s exports have declined nearly 2 million barrels per year; if their oil returns to the market, prices could fall steeply. If conﬂict remains and their production continues to dwindle, expect continued upward pressure on oil.

Looking ahead, neither side is seeking a solution prior to the 2020 Presidential Elections. China hopes for a new partner with which to negotiate, while Trump may seek to maintain the economic high-ground during political debates. Together, these factors point towards prolonged conﬂict between the two largest economies in the world, to the detriment of global growth.

5 US Oil Production Growth The US is the world’s fastest growing crude oil producer, accounting for virtually all global crude output growth over the last two years. Though low prices may alter production economics and slow growth, American producers have shown tremendous resilience during low-price environments. US production has risen from 10 million barrels per day in 2017 to over 12 million barrels today, and that number is expected to surpass 13 million in 2020. With so much new supply available, OPEC and other major producing groups must grapple with how to absorb this increased supply, especially at a time when global demand is weak. 37

New & Evolving Trends 1 IMO 2020 On January 1, 2020, all maritime vessels will need to switch from burning 3.5% sulfur fuel to just 0.5% sulfur. Called “the largest oil change in history,” this event, called IMO 2020, is expected to heavily tax the global refinery network while forcing suppliers to blend in more middle distillates, such as diesel, to meet specifications. For the US, IMO 2020 will cause increased pressure to export diesel fuels, since our refineries are among the most sophisticated in the world. More diesel heading abroad means less available domestically, which could cause diesel prices to rise, with effects especially pronounced during the turnaround season in late 2019 and early 2020.

2 US Presidential Elections Many of the existing trends are centered around the current US administration, making the 2020 Election an important inﬂection point for oil prices. President Trump has brought mixed reactions for business – he’s cut regulation and taxes but has also made some foreign policy decisions that hurt domestic businesses. While the elections will have a stronger effect in 2021, the campaign trail could bring some uncertainty as well. If the election proves quite close, businesses may delay some new investments until they have greater certainty over the future. Uncertainty impacts both the demand side as well as the supply side – oil companies may rush to complete permits for wells in case a new administration takes the White House. The President could also increase foreign policy pressure to rally his base, causing more international uncertainty.

Viewpoints

Fundamentals

Analyst Forecasts

Oil market fundamentals point to a generally balanced market in 2020, though supplies may temporarily outstrip demand in Q2 due to weak demand. The overall implication for markets would be continued trading in the $55-65 range for WTI crude, though OPEC may choose to take on steeper cuts to maintain upward pressure on prices.

When analyzing the future, there’s strength in numbers. Reviewing forecasts from major analytics groups gives a useful gauge of forward-looking sentiment. Unfortunately, the only thing as volatile as oil prices is future perspectives on oil prices.

World Liquid Fuels Production and Consumption Balance

Source: U.S. Energy Information Administration, (EIA) Short-Term Energy Outlook, August 2019

One of the most difﬁcult trends for global markets to reconcile is the growth of US oil production and crude exports. Exports have risen steadily for several years, and producers are expected to add another 1 million barrels per day of production over the next year.

Year-Over-Year US Crude Exports

Current price estimates present a range of views regarding the direction of oil prices over the coming year. The average of these forecasts keeps WTI crude roughly within the $60-$65 range, though forecasts differ dramatically at the edges. Looking towards 2020, price forecasts range from $52 to $92, representing signiﬁcant uncertainty. The divergence shrinks almost in half by 2021. On the high end, investment bank Raymond James is forecasting oil prices in the high $90s in 2020, propelled by IMO 2020 supply gaps. In addition, their forecast considers the continuing collapse of Venezuela’s oil industry and reductions in Iranian oil exports. They see demand remaining strong in 2020, so high oil prices will be needed to temper demand and incentivize higher production. On the opposite end of the spectrum, Swiss bank Julius Baer sees prices trading below today’s price, averaging around $52 in 2020 and sinking further still in 2021. Economic weakness in 2020 drives the forecast, with signiﬁcant volatility along the way. Two prominent US banks who often dominate headlines with their forecasts, JP Morgan and Morgan Stanley, both forecast prices in the low $60 to high $50s range. IMO 2020 and OPEC are the primary bullish drivers in their analysis, while trade wars and other economic headwinds keep prices in check.

Source: U.S. Energy Information Administration, (EIA) Short-Term Energy Outlook, August 2019

Export infrastructure limitations, including limited Permian pipeline takeaway capacity and deep-water ports, are gradually abating. With greater capacity to export, WTI crude prices could move up to be more in line with Brent crude, since both are similar in quality. This could cause mildly higher fuel prices for consumers in the southern Midwest region as well as the Southeast, which are both reliant on Gulf Coast fuels.

Keep in mind, forecast numbers given by analysts are averages only. For example, prices may trade lower in the winter than during summer demand season. Quarterly reports or one-off events (such as an election, or IMO 2020 implementation) can cause volatility far outside the expected range, even while the overall average remains in place. For many companies, it is short-term volatility that presents the biggest risk to operating costs.

As US production grows, other countries will need to factor in the added supply. OPEC has now explicitly stated it includes American oil growth in its calculations for how much oil to cut. Expect continued give and take between legacy oil producing nations and “newer” US production.

Viewpoints

Conclusion Budgeting fuel prices in 2020 will prove challenging given the broad array of factors influencing prices. While a budget price target is a useful guide, there is significant upside (and downside) risk to consider. Fuel price volatility seen over the past two years likely will not fade; if anything, 2020’s market could be driven by the uncertainty of IMO 2020. Using EIA Data and proprietary analysis, Mansfield maintains the following price outlook for oil markets, though with significant deviations throughout the year: • WTI Crude Oil – $59.50* • Wholesale Diesel – $2.20** • Wholesale Gasoline – $1.97**

What You Can Do Facing significant volatility ahead, managing price risk can be a differentiator. If rising fuel prices could cause you to exceed your budget, you need a way to manage your risk. If you can pass on fuel prices to consumers, you may be protected from upward price moves. If you cannot, ensure you have a risk management strategy that can mitigate a potentially volatile market. If you have significant risk exposure, Mansfield can recommend an appropriate strategy such as a fixed price, a price cap, or a collar to control your market exposure. Let us assist you in developing the right risk management plan for your business. •

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, or reliance on 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 contracts. * Based on Aug 2019 EIA Short-Term Energy Outlook Crude Price ** Based on Aug 2019 EIA Short-Term Energy Outlook Retail Prices, US Average Fuel Taxes, and Historical Spread Data

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

678.207.3138 | hedging@mansﬁeldoil.com | www.mansﬁeld.energy 39

4 Viewpoints

By Alan Apthorp, Corporate Marketing Supervisor

Fuel Budgeting Checklist

4 Steps to Effectively Prepare for 2020

As you enter the 2020 budgeting process, your organization will need to generate a budget for the coming year’s fuel expenses. This can be difﬁcult, especially when it comes to predicting market trends. Companies need to predict future costs as accurately as possible yet must also factor in incremental efﬁciencies to remain competitive each year. What’s the best way to plan your annual fuel costs? Using these four steps, you can develop an annual fuel budget at whatever level of sophistication is required for your company.

41 Forecast Your Volumes

The ﬁrst step in planning your fuel budget is knowing what you’ve consumed this past year across all business units and locations. This can be cumbersome depending on how many fuel suppliers you work with. Leveraging a single fuel platform through which to transact your business can help make this calculation easy.

Once you know your historical volumes, multiply that quantity by your company’s growth projection. For instance, if your company expects 3% growth, you’ll want to adjust your projected volumes by a similar factor – taking into account that you may not reach 3% until the latter part of the year. Another factor to consider in your volume calculation is efﬁciency gains. If your company has plans to reduce driver speed limits, install chassis skirts, monitor tire pressures, etc., make sure to factor in efﬁciency gains in the new year, keeping in mind that real-world results may not align perfectly to lab-tested gains. Go Deeper: Try to generate an accurate forecast by city for the coming year. For companies operating nationwide, demand in California may grow at a quicker rate than, say, Idaho. Your company may already have projected revenue growth by site; if so, use this data to supplement your historical demand data.

42 Estimate Your Cost

Your accounting team is likely asking for a precise number to include in the budget – which can be incredibly challenging when it comes to commodities. Fuel prices can move 10 cents in a single day, wreaking havoc on your bottom line. The EIA does forecast future crude prices, but their report includes a $30/bbl (70 cents per gallon) margin of error in either direction. How do you pick a ﬁrm price? When estimating a cost, take a conservative approach and assume higher prices in the future.

The adage “Hope for the best but prepare for the worst” is applicable. Look at the past few years of prices and assume a move to the high-end of that range. And of course, work with your fuel supplier to validate whatever number you reach. They can help you develop a strategy to ensure you reach your annual budget targets. Go Deeper: Compare prices in various areas of the country from the prior year and distribute prices accordingly. For instance, California fuel prices are typically 50 cents higher than the national average, so you can add 50 cents to your normal price forecast for fuel used in California.

43 Identify Your Risks

You now have a rough estimate for your fuel budget! Multiply the volume times your average cost per gallon, and you have your initial fuel expense estimate. But sophisticated fleets require more than just an educated guess. What are the risks to your budget numbers? Is your volume consistent, or does it vary significantly each month? Do you have a way to pass on rising fuel costs to your customers, or do rising prices impact your bottom line? Providing this information to your financial planners will minimize surprises later in the year. If you’re not sure what risks you have in your budget, you can request a free risk consultation to validate your assumptions. Go Deeper: Does your company deploy risk management solutions? While the price forecast from step two is helpful, you will always be at the mercy of the market unless you lock in your fuel budget for the year. Fixed fuel prices, price caps, and other risk management tools are available to help you guarantee your budget numbers. These 40

instruments enable you to stop worrying about market prices and focus instead on operating your business more successfully.

44 Consider Related Costs

Finally, once you have a solid fuel budget number and appropriate risk assessments, you should consider the ancillary costs associated with fuel. Depending on who manages sites and fueling, you may or may not be directly responsible for considering or bearing ancillary costs – yet you will need to understand these to fully account for the total cost of fuel procurement. For instance, fuel storage systems are often left for site-level management to maintain, yet those systems represent the potential for signiﬁcant savings through corporate management or signiﬁcant overhead if not properly controlled. Beyond the fuel itself, you should develop (or stay apprised of) plans related to the following areas: • Fuel Tank Maintenance & Upgrades • Lubricants & Storage • Diesel Exhaust Fluid & Storage • Winter Operability Solutions • Emergency Fueling Procedures Go Deeper: If your company does not have a formal strategy in each of these areas today, work with your fuel supplier to develop an optimal approach for minimizing costs and streamlining operations.

Conclusion With the right plan, you can be well-prepared for the new year. Predicting the future is impossible, but prudent planning can help you manage the uncertainty. With the four simple steps outlined here, you will be able to successfully lead your company’s fuel program through 2020 and beyond. •

Q22

Mansﬁeld National Supply Team Contributors

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

Andy Milton

Sara Bonario

Senior VP of Supply & Distribution

Supply Director

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

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

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

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

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

Alan Apthorp

Dan Luther

Corporate Marketing Supervisor

Director, Supply Optimization

Alan Apthorp leads Mansfield's Corporate Marketing Team and is the lead writer and editor of Mansfield’s FUELSNews publication. Prior to his marketing role, Alan served as Chief of Staff, providing Mansfield's leadership team with insights on market trends and conducting industry analysis to inform business strategies. •

Teamwork

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Innovation

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Integrity

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

Excellence

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Conscientiousness

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Personal Ser vice

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

Q22

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

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

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