Another Day, Another Record Set For RIN Prices
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.
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View AllThe Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.
The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.
We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.
The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.
Click here to download a PDF of today's TACenergy Market Talk.
Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.
There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.
As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.
Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.