Diesel Leads Energy Gains While Gasoline Lags Despite Holiday Travel

Diesel futures are leading the energy complex higher for a 2nd day as tight inventories on the East and West coasts puts upward pressure on both futures and cash prices. Despite a forecast for a record-setting travel weekend upcoming, gasoline prices are lagging the move in distillates as supplies remain ample across most of the country.

The API estimated another build in gasoline inventories of 1.9 million barrels last week, while diesel stocks continued to decline, dropping by nearly 3.5 million barrels last week. Crude oil stocks were estimated to show a small increase of 680,000 barrels after dropping steadily over the past month. The EIA’s weekly status report is due out at its normal time today and is still scheduled to be released at its normal time next week since the July 4th holiday falls on a Friday this year. Yesterday the EIA released its monthly data for April biofuel inventory and production, showing another decline in renewable diesel stocks (which aren’t included in the weekly figures) while domestic production ticked modestly higher after plummeting to start the year.

The main reason stocks continue to decline despite the tick higher in domestic production of RD is that imports remain almost non-existent since the new CFPC (AKA 45Z) doesn’t grant any credit to imported fuels, unlike the BTC that gave $1/gallon regardless of carbon intensity or origin. The recent proposal from the EPA to reduce RIN generation by 50% for fuel produced overseas or with imported feedstocks will only make that situation worse, although some believe that the EPA’s proposal won’t pass legal challenges as that change falls outside of the congressional mandate.

While the war in Ukraine took a bit of a backseat in the headlines last month, it’s now clear that Russian energy infrastructure is once again becoming a target after a brief respite during the failed attempts at a ceasefire. The 140mb/day Rosneft Refinery that’s more than 900 miles from the border was struck yesterday by Ukrainian drones, continuing a pattern of targeting refineries that has hampered production over the past 2 years. In addition to the attacks on refineries and fuel terminals, a new front in the energy war has also apparently opened as at least 5 oil tankers have been damaged by mines after visiting Russian ports in recent weeks. The cause of these attacks is still a bit of a mystery, with some suggesting that Libya, not Russia, may be the common link.

The spending bill that just passed the Senate and now goes to the House spared wind and solar projects from a proposed excise tax, but qualifying for incentives passes in the IRA 3 years ago may be nearly impossible and will no doubt push more demand for natural gas power generation if it ends up becoming law. The FERC meanwhile has been busy eliminating the restrictions that delayed or prevented numerous pipeline projects, which should help the country’s ample natural gas supplies get to where they’re needed as electricity demand ramps up in the coming years.

While we await the latest OPEC announcement due out Sunday, a note from MarketWatch this AM highlights why increased production decline rates may offset a large portion of that increased output.

Exxon reported an unplanned shutdown of an alkylation unit at its Baytown TX refinery Monday due to a compressor trip. While the event is said to be ongoing, the filing suggested the impact to production was minimal.

Delek reported an upset in an FCC unit at their Tyler TX refinery due to a power disruption Monday that required a restart of that unit.