Energy Markets Are Moving Sharply Higher Tuesday, Erasing Most Of The Large Losses From Monday’s Session

Energy markets are moving sharply higher Tuesday, erasing most of the large losses from Monday’s session. An uptick in fighting in the Ukraine, some relaxation in Shanghai’s COVID lockdown restrictions, and a reminder from OPEC that help is not on the way are all getting some credit for the big bounce in futures. From a technical perspective, this bounce keeps the weekly trend-lines intact, and keeps the door open for another significant move higher in the next few weeks. 

An announcement from the White House is getting lots of headlines over a largely meaningless approval of E15, in an attempt to lower gasoline prices/garner some votes while largely ignoring a more impactful shift in biofuel production options. 

The approval of E15, which had already been approved under the previous administration, only to have that approval struck down by the courts, probably won’t change much as the markets equipped and eager to move more ethanol (aka the Midwest corn growing states) are already relatively well supplied with gasoline vs the coastal markets, that are having just as hard a time finding ethanol due to logistical bottlenecks with rail cars and trucks as they are finding extra gasoline. There’s also that dirty little detail that ethanol blends may actually pollute more than gasoline, particularly higher blends in the warmer months, that continues to be an inconvenient detail when the world suddenly cares more about high prices than climate change.

Meanwhile, buried in the last paragraph of the White House announcement, and ignored by the headlines, was word that the EPA is proposing approval of Canola Oil as an “advanced biofuel” feedstock for Renewable Diesel and SAF. This move could be significant as some claim that Canola can produce 4X the oil per acre as soybeans, and should help alleviate some of the stress on feedstock supplies if the EPA’s pathway is approved later this year. 

OPEC’s monthly oil market report is due out later this morning. Last month’s report took an unusual but honest approach to forecasting, saying they simply weren’t yet able to predict the impact to demand caused by the fallout from Russia’s invasion of Ukraine. Yesterday, cartel officials told the EU that they would be unable to replace Russian oil exports, which could create one of the worst oil supply shocks ever. 

The EIA this morning gave a good reminder of how globally intertwined US energy supplies are, reporting that both imports and exports of petroleum products increased last year. Other petroleum products continue to be the largest mover of both imports and exports as petrochemicals to support numerous non-transportation-related items continues to grow even as the world tries to go green. 

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