After 4 Days Of Heavy Selling, Energy Futures Are Seeing A Small Recovery Bounce To Start Friday’s Session

After 4 days of heavy selling, energy futures are seeing a small recovery bounce to start Friday’s session. 

ULSD prices settled below $2.50/gallon for the first time since January 7th 2022 Thursday, which opens up a bit of a technical trapdoor that could see prices slide all the way to $2 before meeting long-term chart support.  The fact that we haven’t yet seen any follow through selling once support at $2.50 broke down suggests the market isn’t quite ready to capitulate.  

RBOB gasoline futures meanwhile have dropped 30 cents from the 6-month high they hit last week but are still holding above the weekly trend-line that has pushed values higher since bottoming out just above $2 back in December. If buyers continue to step in, this bounce will leave the door open to a run at $3 before the end of the annual spring rally, but if that trend support (around $2.55) breaks, then there really would be little technically to stop a major slide in both product prices. 

The weekly slide has put pressure on refiner margins, with crack spreads in several regions dropping to their lowest levels of the year. The most notable shift during this latest pullback in prices has been the forward curve for ULSD, which is now essentially flat from 3-12 months into the future, with a few months this summer trading below fall values. 

Got space?  While futures have been bombarded all week, physical markets continue to show signs of their limited capacity. Colonial linespace values continue to surge this week with gasoline premiums rallying to 7 cents/gallon in Thursday’s session as buyers try to refill summer-grade gasoline stocks along the east coast ahead of the driving season.  While that spike is noteworthy, it pales in comparison to what we’re seeing for space to ship products to Denver from the Group, which jumped up to a 15 cent premium following reports that Suncor was starting maintenance at the refinery it just restarted after being knocked offline for most of the winter. But even those lofty levels look soft compared to the 30 cent premiums to ship barrels to El Paso as 2 southwest refiners remain offline, and that is nothing compared to the 60+ cents/gallon being paid to ship product from LA to Phoenix, which is why we continue to see rack prices across the southwest price in $1/gallon or more above spot values. (See charts below)

There are some signs that this supply squeeze across the Southwest may be coming to an end, as prices for Phoenix-grade gasoline dropped 20 cents relative to LA spot markets yesterday. Then again, the premium for that boutique grade that has been a huge factor in the sudden tightness across the region is still $1.40/gallon even after the pullback. The inevitable return to earth, whenever it happens, is sure to leave traders in the area stressed out for the next several days as they could easily see the value of their product drop $1/gallon or more while it’s in transit.

California LCFS credit values have rallied to a 9 month high this week, outpacing gains in CCA credits which have also reached multi-month highs as regulators debate ways to make their various programs even more restrictive. While LCFS values are still less than half of what they were just 2 years ago, the rally may offer some relief to the parade of new Renewable Diesel producers who depend on those credit values to turn a profit.

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