Another Day, Another Record Set For RIN Prices

Market TalkWednesday, Jun 9 2021
Pivotal Week For Price Action

The bulls have regained control of petroleum futures as early losses Tuesday morning turned into solid afternoon gains, and that momentum carried through the overnight session, pushing all of the big 4 contracts to multi-year highs. WTI reached 70.62, and ULSD hit $2.1467, the highest for both contracts since October 2018, while Brent reached $72.83, its highest trade since June 2019. RBOB futures finally joined the rest of the complex, setting a new 3 year high at $2.2356 this morning, a level we haven’t seen since May of 2018.

If these early gains can hold on, the charts favor more upside, that should give WTI a run at the $77 range, which would mean ULSD making a run at $2.30 and RBOB pushing $2.40 in the next several weeks. 

The API was said to report a draw in U.S. crude oil stocks of 2.1 million barrels last week, which is getting some of the credit for the rally in WTI this morning. That doesn’t help explain why products are also up however since gasoline stocks increased by 2.4 million barrels and distillates grew by 3.7 million. The EIA’s weekly report is due out at 9:30 central.

Yesterday the DOE released its monthly Short Term Energy Outlook (STEO). The forecasts show increased expectations for U.S. Gasoline demand compared to previous reports, noting that demand before and after the Colonial shutdown has surpassed expectations, but will likely stay below pre-pandemic levels until the end of next year. Diesel meanwhile continues to show demand outstripping supply, causing a sharp drawdown in inventories in the U.S., and leaving the supply chain vulnerable over the coming months. The report also noted that diesel crack spreads have reached their highest levels since December 2019, but failed to mention that renewable volume obligations (RVO) eat up roughly $10/barrel of those gross margins.

Another day, another record set for RIN prices with both D6 and D4 values moving steadily higher even as corn and soybean prices pulled back from recent highs. That increase in RINs pushed the RVO cost for each gallon of gasoline or diesel produced or imported north of 23 cents/gallon. Remember that the next time someone asks you why gasoline prices are suddenly so high.     

Around the world and across industries, we’re witnessing the challenges faced by supply chains that are built for extremely large scale and efficiency struggling to meet the rapid pace of demand change. In the refined fuels world, that recovery has been hampered by two of the largest supply shocks ever, February’s Polar Plunge that disrupted just about every refinery in PADD 3 and the Colonial Pipeline hack that took half of the East Coast’s supply offline for a week. While things have calmed down considerably over the past several weeks, the fallout from both events is still being felt. Several refineries continue to struggle to bring units back online that were damaged in the freeze, and the FMCSA extended HOS waivers again for truckers are suppliers still struggle to catch up even though Colonial has been fully operational for three weeks.  

 Click here to download a PDF of today's TACenergy Market Talk.

Market Update (01A) 6.9.21

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Pivotal Week For Price Action
Market TalkMonday, Dec 5 2022

The Officially Imposed Sanctions Against Russian Oil Exports Are Taking Credit For This Morning’s Gains In Energy Prices

The officially imposed sanctions against Russian oil exports are taking credit for this morning’s gains in energy prices. Brent futures, the benchmark for European crude oil, are leading the pack higher so far today, trading up nearly 3%. West Texas Intermediate futures, along with both American refined product contracts, are tagging along with 1.5-2.5% gains.

OPEC’n’friends decided to stay pat on their Production Reduction™ policy through the end of the year, which aims to remove about 2 million barrels per day from global oil inventories. The relatively muted response in energy futures action suggests the ban on Russian crude and the continued reduction in cartel oil supply were both largely priced in.

It seems we have averted disaster last Friday as Washington passed legislation to prevent rail workers from going on strike. While the vast majority of refined products are transported to market hubs via pipeline, the required ethanol component of retail gasoline is by-and-large supplied via railcars.

Heating Oil futures stand out as the lone contract of the ‘big five’ that saw increased bullish bets from money managers last week, mostly due to the trimming of short positions rather than the addition of long positions. It seems fewer and fewer traders are willing to bet on lower diesel prices heading into the winter, where distillates act as backup supply for heating homes.

Market participants in crude oil futures fell to lows not seen since 2016 last week. It seems the global uncertainty surrounding energy supply and infrastructure has some potential players taking a wait-and-see approach rather than betting on price direction.

Click here to download a PDF of today's TACenergy Market Talk.

Pivotal Week For Price Action
Market TalkFriday, Dec 2 2022

The Energy Complex Is Trading Mostly Lower So Far This Morning

The energy complex is trading mostly lower so far this morning, with prompt month RBOB futures leading the way. Brent crude oil is struggling to hold on to overnight gains and it is exchanging hands on the green side of even, if only just.

The easing of quarantine protocols in China is taking partial credit for the weekly gain in WTI futures this morning, despite the emergence of reports and images showing provisional camps set up to enforce isolation and curb the latest spread of the pandemic.

The “ban” on Russian crude oil, set to take effect on Monday, has yet to reach final approval in Europe. Poland seems to be one of the last holdouts and has not been shy about wanting the price cap to be as low as possible.

Sunday’s OPEC+ meeting, which will reportedly be held virtually, is also getting some play in the headlines this morning. While some consider the setting of the meeting to telegraph no change in the cartel’s production policy, others posit the group is considering cuts ahead of next week’s oil ban.

The Bureau of Labor Statistics published the November jobs report this morning, an increase in nonfarm payrolls of 263,000 while unemployment rate held pat at 3.7%. The stock market did not like that: S&P 500 futures dropped 1.4% on the news as traders expect higher-than-expected job growth to buttress the Fed’s intent on continuing to raise interest rates.

The EPA published their proposed volume obligations under the Renewable Fuel Standard for the next three years and is now seeking public opinion on their target levels. Their report also estimates that the RIN obligations will reduce US oil imports by ~170,000 barrels per year. Is that a typo? We imported 6 million barrels per day last week, for reference.

Click here to download a PDF of today's TACenergy Market Talk.

Pivotal Week For Price Action
Market TalkThursday, Dec 1 2022

December Trading Is Kicking Off With Modest Gains For Energy Contracts

December trading is kicking off with modest gains for energy contracts after a strong finish to November helped the complex avoid a technical breakdown.  

Equity markets saw another big rally Wednesday after the FED chair suggested that smaller rate hikes were coming. The correlation between energy and equity markets remains weak, so it doesn’t seem like that’s having much influence on daily pricing, but it certainly doesn’t hurt the case for a recovery rally.  New reports that China may ease some lockdowns in the wake of last weekend’s protests is also getting some credit for the strength in prices after they reached 11 month lows on Monday.

The DOE’s weekly report had something for everyone with crude oil stocks showing some bullish figures while refined product supplies got some much-needed relief.

US Crude oil inventories saw a huge drop of more than 12 million barrels last week thanks to a surge in exports to the 3rd highest level on record, a drop in imports, and the SPR sales that have been supplementing commercial supplies for the past 6 months wind down. The market reaction was fairly muted to the big headline drop, which is probably due to the inconsistent nature of the import/export flows, which are likely to reverse course next week. The lack of SPR injections will be a key figure to watch through the winter, particularly as the Russian embargo starts next week.

Diesel inventories increases across all 5 PADDs last week, as demand dipped again and imports ticked higher. Diesel exports remain above average, and are expected to continue that pace in the near term as European and Latin American buyers continue to be short. Read this note for why in the long term more of those supplies will probably come from China or Kuwait

US refiners continue to run all-out, with total throughput last week reaching its highest level since the start of the pandemic, even though we’ve lost more than 600,000 barrels/day of capacity since then. Those high run rates at a time of soft demand help explain why we’re seeing big negative basis values at the refining hubs around the country and if the pipeline and vessel outlets can’t keep pace to move that product elsewhere we may see those refiners forced to cut back due to lack of storage options.

The EPA was required by court order to submit its plans for the renewable fuel standard by November 16, and then came to an agreement to release them on November 30, and then apparently decided to meet that deadline, but not release the plan to the public. If you think this is ridiculous, you’re not alone, but keep in mind this is the same agency that regularly missed the statutory deadline by more than a year previously, so it’s also not too surprising. This is also the law that required 16 billion gallons/year of cellulosic biofuels be blended by 2022 when it was put into place 15 years ago, only to run into a wall of physical reality where the country is still unable to produce even 1 billion gallons/year of that fuel. 

There are still expectations that the public may get to see the proposed rulings later this week, and reports that renewable electricity generation will be added to the mix for the first time ever starting next year. RIN prices were pulling back from the 18 month highs they reached leading up to the non-announcement as it seems the addition of “eRINs” will add new RIN supply, and potentially offset the increased biofuel mandates.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.