Gasoline sulfur credit market turnaround

This week Tier 3 gasoline sulfur credits traded over $1,000 / million ppm-gallon. That’s 5 times higher than the bottom price in November 2020, but still far below the pre-lockdown peak.

The true demand for Tier 3 credits has not yet emerged. That will happen when the North American refining system fully adjusts to the new reality of 10 ppm sulfur for all refiners, which is only now starting to occur.

Soon we will learn the 2020 US average pool sulfur number. Watch this blog to catch that news, same day, in coming weeks. But even that number will carry an asterisk — because making 10 ppm sulfur was easy when running half-speed in 2020.

With gasoline demand recovering from the lockdown effect, some refiners are starting to feel the octane/sulfur squeeze and probing the market to get a grip on the possible future cost of sulfur credit liabilities.

Octane demand has fully recovered. Hence the squeeze is here — octane and sulfur credits, demand and price, all going up together, against a low, fixed supply.

All refiners should know:

  1. your incremental cost for producing octane versus your gasoline pool sulfur, over a range from 5 ppm to 15 ppm sulfur.
  2. How your cost curve compares to your competitors’, and the overall industry curve — first quintile? second? . . . bottom?
  3. What will be the likely future supply and demand for Tier 3 sulfur credits at the new equilibrium?

This information is easy to get. And it provides a sound, simple roadmap to confidently make the right decisions to profitably navigate the coming Tier 3 world.

This time, don’t wait until the credit market controls you. Take control yourself today.

Anticipating Tier 3

As always, refining executives are dealing today with important and urgent issues (like safety, reliability, turnarounds, and survival!).  The industry has shed thousands of people and internal planning capabilities are not what they were.

No longer can every refiner have its own proprietary expertise on everything.  For those who don’t, it’s increasingly valuable to use focused, third-party research which is readily available and underutilized by refiners who are accustomed to going it alone.

Hoekstra Trading has a different take on Tier 3 gasoline and sulfur credits.   It has been a major focus for us since 2015.  Our client group uses shared resources and external networks to dig deep, get critical data, and develop understanding that enables early, well-informed decisions that create opportunities and reduce risk.

None of our Tier 3 research is proprietary. Our multi-client reports are available immediately to anyone at negligible cost (see references 6, 7, 8 in this article or contact me any time!).

They enable refining decision makers to check their understanding, ensure they are well-informed, anticipate foreseeable outcomes, and act before things boil over into another credit crisis. 

George Hoekstra +1 630 330-8159

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Hoekstra Trading LLC